TIME: Almanac 1995

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<text id=90TT2502> <link 91TT2015> <link 90TT3140> <title> Sep. 24, 1990: Soviet Union:Beyond Perestroika </title> <history> TIME--The Weekly Newsmagazine--1990 Sep. 24, 1990 Under The Gun </history> <article> <source>Time Magazine</source> <hdr> WORLD, Page 58 SOVIET UNION Beyond Perestroika </hdr> <body> Gorbachev hails a radical economic plan that could turn the Soviet Union into a nation of shopkeepers, but then suggests a few ways to dilute it By John Kohan/Moscow For angry Soviet consumers, Prime Minister Nikolai Ryzhkov has come to personify just about everything that is wrong with perestroika. Twice in the past nine months he has tried to come up with an economic plan to save the floundering Soviet economy--without success. As lines for basic staples, including bread, grow ever longer, confidence in his government has dipped so precipitously that even President Mikhail Gorbachev decided last month to join forces with longtime rival Boris Yeltsin, leader of the Russian Republic, in drafting an alternative plan. Thus when Ryzhkov stepped to the podium of the Supreme Soviet last week to present his latest plan to bail out the economy, parliamentary deputies, just back from the summer recess and visits with cranky voters, were not about to let him off lightly. The Prime Minister had barely finished explaining his new "moderate-radical" program for a gradual, state-regulated move toward a market economy when his critics began sounding off. "I listened, and can't understand what has been presented to us," snapped radical Leningrad Mayor Anatoli Sobchak. "Is this a government program or criticism of the alternative plan that we have yet to hear?" Armenian Deputy Genrikh Igityan was even more brutal. "I have sympathy with you," he said, turning to Ryzhkov, "but are you capable of bringing this country out of crisis?" Ryzhkov, said worker Leonid Sukhov, would "certainly have to step down." Nikolai Ivanov, the controversial public prosecutor and Kremlin gadfly, went even further. Gorbachev, he said, would also have to go. When the clamor reached a climax, the Soviet President, sitting glumly on a back bench of the tribunal, decided he had heard enough. Gorbachev intervened to defend his embattled Prime Minister. His voice quavering with emotion, he warned against "shaking up all political institutions" in the country. "If someone proves incompetent," said Gorbachev, "let's remove him. But in a normal fashion. Not by pushing him up against the wall." All the "insults and insinuations," he charged, left a "bad odor." But then the Soviet President delivered what was probably the unkindest cut of all to Ryzhkov. He indicated that he preferred not his Prime Minister's proposals but a radical plan drafted by the Yeltsin-Gorbachev commission, under the leadership of economist Stanislav Shatalin. "If you ask me," he said, "I am more impressed by the Shatalin plan." The Ryzhkov proposals, he noted, reflected an "uncertainty" about carrying out measures to rebuild economic confidence. Explained Gorbachev: "If there is a real plan to stabilize finances, money circulation, the ruble and the market, then we should adopt the Shatalin idea." That would be a breathtaking plunge. The 500-day Shatalin program would reverse the basic aim of the Bolshevik revolution and Stalin's brutal overlay of collectivism by creating a nation of shopkeepers--or more accurately, a federation of republics with economies built on private businesses, individually owned farms, entrepreneurial investments, and stock markets trading shares in competitive companies. The basic goal of Gorbachev's perestroika had been the "restructuring" of centralized socialism; the Shatalin plan aims at the destruction of it, both the centralized aspect and the socialist aspect. Within two years, 70% of the nation's industrial enterprises would be privatized, with stock markets in Moscow and Leningrad trading shares in competitive firms. An even larger proportion--perhaps 90%--of businesses in the service and retail trading sectors would be put in private hands. A version of the Shatalin plan circulating in Moscow last week put it bluntly: "Mankind has not succeeded in creating anything more efficient than a market economy." Gorbachev discussed the Soviet Union's economic reforms later in the week with a gilt-edged delegation of American businessmen from 15 of the country's largest firms, who had gone to Moscow with Secretary of State James Baker and Secretary of Commerce Robert Mosbacher. Gorbachev hinted that the Soviet Union was prepared to open its doors wider to the outside world, noting, "We are ready to draw foreign, including U.S., investments on mutually beneficial terms." The Shatalin plan goes further: instead of the old system of joint ventures, foreign companies would have the right to acquire 100% ownership of Soviet firms. The Soviets are already scrambling for Western trade to alleviate the acute shortages that have brought consumers to the verge of revolt. To ease the tobacco rationing that prompted smokers to riot in almost a dozen cities, Philip Morris and RJR Nabisco announced plans last week to sell 34 billion cigarettes to the Russian Republic. "It would be shortsighted to ignore the experience of economic development in the U.S.," Gorbachev told the visiting businessmen. The changing mood in Moscow was enough to inspire one American participant, Paine Webber chairman Donald Marron, to declare, "Capitalism is coming to the Soviet Union." Not quite, at least not yet. Gorbachev, it turned out, is still beset by doubts over how to dismantle the centralized economy, and how quickly. Two weeks ago, he seemed determined to present a single economic program to the nation, combining elements from both the Ryzhkov and Shatalin programs. Gorbachev asked Abel Aganbegyan, one of the early architects of his perestroika policy, to draft the joint package. Last week the economist delivered his report to the Supreme Soviet. According to Aganbegyan, it had proved impossible "to make a single program out of the two." The compromise plan that he presented is drawn primarily from the Shatalin plan--with some notable amendments by Gorbachev. The Soviet President was particularly eager to dilute or delete the passages that transfer economic autonomy from the central government to the Soviet Union's 15 republics. Shatalin had proposed that even the tax collection be done by each republic. Gorbachev indicated that he would rather see such problems resolved in a new Union treaty. Gorbachev also tinkered with the timetable and scope of some of the proposed reforms to make the changes less jolting. The Aganbegyan document, along with copies of the complete Shatalin plan, the Ryzhkov proposals and materials on 120 alternative schemes considered by a separate study group led by Aganbegyan, were dispatched last week to the Soviet parliament and the parliaments of Russia and the other republics. There are substantial areas of conflict among the various plans, including how much power and what share of tax revenues should be given to the centralized Soviet government. Another area of deep conflict concerns pricing. The government wants to bring about fiscal order through price hikes, offset by compensatory payments to the social groups hardest hit by the reforms. But prices cannot stabilize as long as there are too many rubles chasing too few consumer goods. The Shatalin plan calls for absorbing excess rubles from the Soviet economy by selling back state-owned assets to the public. In addition, Gorbachev last week raised the idea of devaluing the official exchange rate for the ruble, from $1.66 all the way down to 50 cents. Economists for the Gorbachev-Yeltsin commission contend that once sufficient amounts of money have been pulled out of circulation, prices can be liberalized, since real market forces will operate to keep them stable. Unlike the Poles, argues Gorbachev economic adviser Nikolai Petrakov, "Soviet citizens would rather stand in long lines than confront a rise in prices." After the stormy parliamentary session, Ryzhkov and a grim-looking Deputy Prime Minister Leonid Abalkin hinted that disaster would result if the Shatalin plan were approved without changes. Abalkin warned that trying an unsuccessful form of "shock treatment" might leave "the populace and the government allergic to the market idea for decades." Ryzhkov expressed concern that by giving free rein to market forces, the Gorbachev-Yeltsin group plan might set off a "staggering surge of prices, destabilize economic life and disorient enterprises." Gorbachev has decided to throw the issues out for public debate, arguing that "the people must make their choice." There seems little doubt, however, that Shatalin's radical 500-day program, with some modifications, will prevail. The most telling vote came last week in the parliament of the Russian Republic, led by Yeltsin, where deputies approved the basic outlines of the Shatalin package by a lopsided count of 213 to 2. They also issued an appeal to other parliaments across the nation to follow their lead in approving the plan as quickly as possible. Yeltsin added a proviso: "The adoption of the program should go together with the resignation of the Ryzhkov government." By now that refrain must sound all too familiar to Gorbachev, who still seems to prefer that Ryzhkov jump rather than be pushed. Even though Gorbachev has come out in support of the Shatalin program, his proposed changes in the text suggest he also has a certain ambivalence about taking the final grand leap into a market economy. With tensions mounting across the country, whether cigarette riots in provincial Russia or border skirmishes in the Caucasus, Gorbachev cannot help being concerned about what might result from added chaos in the economy. Last week he sent out a presidential telegram to regional leaders, warning that perestroika would amount only to "good intentions" unless governments at all levels took steps to strengthen "law, order and discipline." It was a signal to batten down the hatches. More change lies ahead. THE 500-DAY PLAN The Shatalin plan can be summed up by the credo "Economic Power to the People!" Others might simply call it capitalism. Here are the key points from the document: PRIVATIZATION. Close to 80% of the Soviet economy would eventually be put in private hands. Large enterprises would be turned into stockholding companies, and small businesses, shops and restaurants sold to individuals. Farmers would be allowed to withdraw from collective farms and receive an allotment of land and assets. Defense, railways, postal service, power and long-distance communications would remain nationalized. ECONOMIC UNION. Under the Shatalin plan, there would be one common trade market and currency; the 15 republics of the Soviet Union would control their own economies and take voluntary steps to prepare a new treaty of union. Gorbachev, however, says that economic sovereignty for the republics should not be part of the plan. PRICES. After a 100-day period of strict fiscal controls to stabilize the economy and cut the budget deficit, most prices would be "liberalized" and set by the market rather than a central bureaucracy, beginning with the cost of luxury items. CREDIT. State subsidies to money-losing enterprises would be cut off. Instead, credit would be made available from Western-style banks and lending institutions. Gorbachev expressed reservations about the abrupt timetable for ending subsidies. TRADE AND INVESTMENT. Hard-currency trade would be allowed, and foreign companies could own 100% of Soviet companies. The aim is an open economy, fully incorporated into the world market. UNEMPLOYMENT. Workers who lost their jobs as a result of the reforms would be given unemployment insurance, temporary work in public-service projects and job retraining. WILL IT WORK? [Four economists assess the prospects for reform.] ROBERT HEILBRONER [Professor of economics at the New School for Social Research and author of Marxism: For and Against.] There is no way of bringing about the kinds of change necessary without risk. It is a question of taking exactly the right amount of risk. Too little, too slow a pace, and you end up only halfway there, but if the risk is too big, you face the possibility of revolution. Gorbachev has been criticized for excessive caution and halfhearted measures, but he is acting as a politician who has to be responsible for the hardships triggered by these moves. Shatalin is an economist, and economists are always ready to take big chances because they have little to risk; they are not actually responsible for anything. ED HEWETT [Brookings Institution and author of Reforming the Soviet Economy.] The Shatalin plan is by far the best attempt at compromise between the politics and the economics of the current situation. But any sane person would have to have concerns about the future of the Soviet Union. In that plan all power flows to the republics, and the problems of negotiations among the 15 republics will be awesome. For example, the Union will retain the responsibility for repaying international debt, but the republics will have all foreign exchange. On privatization, there will be problems finding buyers, because we have no idea of the value of the assets we are talking about. MARSHALL GOLDMAN [Associate director of the Russian Research Center at Harvard.] Shatalin's plan is the best thing they've had. Here is a road map, even though there are lots of potholes. One strength is that by selling property they are trying to reduce the amount of money that is floating around, something that has to be done because the ruble has no meaning. But I am concerned that they did not have a monetary reform. That's a major pothole. The devolution of power from the center could be the biggest pothole of all, in the sense that it means the breakup of the Soviet Union. If you turn the power to tax over to the republics, then what is the place of a national government? WILLIAM SIMON [Former U.S. Treasury Secretary.] Everything that has occurred in Eastern Europe with particular reference to the Soviet Union has been nothing short of stunning. At first, I was very skeptical because we have been fooled before, but I am convinced that this is a true sea change. Still, it is going to be very difficult. They have no infrastructure; the capital investors needed are going to be skeptical at first; there has to be a convertible currency, a reasonable rate of return, and they have to destroy a bureaucracy. The problems are mammoth, but that's all right, they can do it. I am hopeful. </body> </article> </text>