TIME: Almanac 1995

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<text id=92TT2152> <title> Sep. 28, 1992: Counterreformation </title> <history> TIME--The Weekly Newsmagazine--1992 Sep. 28, 1992 The Economy </history> <article> <source>Time Magazine</source> <hdr> FORMER SOVIET BLOC, Page 52 Counterreformation </hdr><body> Across the old East bloc, die-hard communists, nationalists and spoiled workers are thwarting the drive toward free-market democracy By George J. Church--With reporting by James Carney/Moscow and William Mader/London, with other bureaus Debates still rage in Moscow about whether hard-liners might try another coup to restore something like the old communist regime. But the real question is, Why should they bother? Already, conservatives--in a post-Soviet context, those who resist change in the old Kremlin ways--have been staging a kind of "creeping coup." They have been worming their way into key positions in President Boris Yeltsin's administration and are beginning to bend policy toward continued, or even increased, state control of the economy. Crows Arkady Volsky, head of the anti-Yeltsin faction: "The policies of the reformist government are on the brink of collapse." That is premature. So far, the drive toward a free-market democracy has been only slowed, not reversed, as economic policy stutters in contradictory directions. One day it moves toward more private capitalism: witness Yeltsin's plan to distribute to all Russian citizens, beginning Oct. 1, vouchers that they can exchange for shares in state-owned businesses. But the next--or even the same--day policy veers backward. The former communists succeeded in wangling increased subsidies to keep alive outmoded enterprises that free-marketeers insist should be allowed to go bankrupt. The contradictions could worsen Russia's economic slump by reigniting hyperinflation. And more economic misery could eventually undermine democracy as well--even though Volsky's Civic Union could theoretically be viewed as a Russian version of that democratic Western institution the loyal opposition. Elsewhere in what was once the Soviet bloc, the road to capitalist democracy is turning out to be strewn with pitfalls, detours and an occasional reversal. Hardly anyone in the former Soviet republics or the onetime satellite states of Eastern Europe is openly advocating a return to communism--by that name. But in some countries, the communists who now call themselves socialists have given up hardly any of their control of economic, political and social life. President Ion Iliescu rules Romania less brutally than did his executed predecessor, Nicolae Ceausescu, but with as keen a will to block all reform. Across the East bloc, diehards are rebelling against the rigors of converting state-run economies to free markets. In Czechoslovakia that backlash is helping to break the country in half. In Poland economic backsliding has aggravated, and been aggravated by, a democracy run riot. Parliament is splintered into 29 political groupings, and a succession of revolving-door governments--three Prime Ministers in less than a year--have been unable to get any firm grip on the floundering economy. Diverse though these troubles are, they have some common denominators. The former Soviet republics and satellites that are trying to build capitalist democracies must do so from scratch, with little or no experience in either capitalism or democracy. They are getting precious little help from their cold-war adversaries, who sometimes seem to enforce a double standard. Western governments may, for example, demand that to qualify for aid an ex-communist country reduce its agricultural subsidies to a level well below the largesse that the West showers on its farmers. Worse, in order to keep their countries operating, democratic leaders in the old Soviet orbit have to rely on the army of apparatchiks who ran the communist system and who naturally resist reforms that would dilute their power. Russia's Volsky in some ways is typical: he began working in the military-industrial system in Leonid Brezhnev's day and eventually rose to chief of industry for the Communist Party under Mikhail Gorbachev. His Industrialists' Union claims to represent 70% of the country's state-enterprise managers. In June it joined forces with two other parties, one headed by Yeltsin's Vice President, Alexander Rutskoi, to form Civic Union, which is probably the best-organized political faction in the country. Yeltsin, zigzagging between conservatives and reformers in the same manner he denounced when Gorbachev was doing it, has named conservatives to three of Russia's eight deputy premierships, and installed Viktor Gerashchenko, who once ran the Soviet Gosbank, as head of the new Russian central bank. Civic Union's avowed aim is to become a "constructive opposition," offering an "alternative program" to the free-market policies pursued by Acting Prime Minister Yegor Gaidar. In practice, though, its focus is on propping up the aging, inefficient steel mills, tractor works and other state-owned industrial dinosaurs. Gaidar and others insist that they must be allowed to go out of business, despite the immediate pain, if Russia is ever to have an efficient, modern economy. But Civic Union contends that the resulting mass unemployment would simply be too great, and that argument seems to be converting some reformers. Says Sergei Stankevich, a Yeltsin adviser: "The orthodox liberal idea of letting the majority of enterprises go bankrupt and then, after we have millions of unemployed, retrain, reorganize, sell is absolute nonsense." Gerashchenko announced last month that he intends to extend loans to the wheezing dinosaurs, enabling them to pay off vast debts, and to raise part of the money by printing 350 billion to 400 billion new rubles. Gaidar nonetheless is pressing ahead with his plan to put all small business and housing into private hands by 1994, and at least 60% of big business by 1995, initially through the voucher plan. Actually, some of Civic Union's supporters may not resist: they hope to buy up many of the vouchers and cement their control of businesses by becoming the official owners as well as the managers. There are Western economists who think such a development might not be all bad. Says Paul Craig Roberts, a political economist at the Washington-based Center for Strategic and International Studies: "I meet these people all the time. Some of them are rather entrepreneurial" and are beginning to act more like capitalist businessmen than like communist apparatchiks. Maybe, but the immediate consequences of the conservatives' creeping coup threaten to be disastrous. Gera shchenko's money-printing plans are already triggering another steep drop in the value of the ruble, possibly dooming hopes of making it freely convertible. The flood of cash also seems likely to touch off another burst of hyperinflation, which the country can scarcely afford. Though price increases have slowed from a high of 1% a day in early June to a current rate of around 15% a month, that would still be considered calamitous in almost any other industrial country. And a rise in the Russian budget deficit could well cause the IMF to suspend any aid beyond the emergency $1 billion extended this summer. None of which would displease some Civic Union supporters, who accuse Gaidar of copying Western economic models that do not apply to Russia. As if that were not enough, Yeltsin predicts "political games" that will make for a "hard October" when the Congress of Peoples Deputies reconvenes. Conservatives might try to oust Gaidar from the government and even curtail some of Yeltsin's presidential powers. If the creeping coup falls short of complete success, there is always a chance that economic conservatives will join forces with nationalists and military men outraged by Russia's loss of superpower glory to stage an old-fashioned coup. The nationalists exhibited enough clout to force Yeltsin to cancel a visit to Tokyo two weeks ago, lest his trip speed negotiations to return to Japan some of the Kurile Islands taken by the U.S.S.R. at the end of World War II. For all the backsliding, the cause of capitalist democracy is still much further advanced in Russia than in most of the other former Soviet republics. Armenia is an exception: it is instituting a multiparty democracy and privatizing its economy despite the endless drain of its resources in a virtual war with Azerbaijan over Nagorno-Karabakh. But in Central Asia, Uzbekistan is still a communist state in fact if not in name, and progress toward democracy in Tajikistan, if any, is ambiguous. Old-line communist President Rakhman Nabiyev was overthrown this month by an armed coup, but its leaders came under immediate suspicion of trying to replace him with an Iranian-style Islamic fundamentalist regime. The biggest non-Russian republic of all, Ukraine, is backsliding. Not only has President Leonid Kravchuk retained tight political control, he has sacked the government's leading economic reformer. His explanation is that he wants to avoid the mistakes of those republics that have plunged pell-mell into capitalism--like Russia. In Eastern Europe the situation is a little better. The initial wave of inflation that accompanied free-market reforms is subsiding: this year's Polish rate, for example, is expected to be 40%, down from 70% in 1991. Although official figures still show sagging production and rising unemployment, some experts suspect the statistics have not caught up with a booming private market. "Shopping in Poland these days is far easier than shopping in Austria," says John Reed, a Vienna-based expert on the Polish economy. "It's the wild, wild East, with shops open at all hours and a range of goods one could never find in Vienna." In Hungary, too, says Charles Huebner of the Budapest-based Hungarian-American Enterprise Fund, "you can get just about anything." Parents can now buy a Hungarian-made brand of disposable diapers, and the producers "can't make them fast enough." But even in middle Europe, a backlash is causing trouble. In Czechoslovakia, Prime Minister Vaclav Klaus is pursuing a rapid move to free markets--he pioneered the voucher scheme for privatizing state industry that Russia now proposes to copy--at the price of agreeing to a date of Jan. 1 for splitting the nation into separate Czech and Slovak republics. Slovak insistence on breaking up the union is fueled partly by ethnic animosity, often expressed as resentment of a "big brother" arrogance on the part of the Czechs. But it also reflects the Prague government's refusal to keep subsidizing such Slovak heavy industries as the aluminum plant in the town of Ziad Nad Hronom, an antiquated, pollution-belching monster. Whether an independent Slovakia can keep such industries going is questionable. Unemployment in Slovakia is already 12%, four times the Czech rate, and it has been held to that level only with the aid of heavy subsidies coming from Prague. But having threatened to secede and been told, in effect, "O.K.--goodbye," the Slovaks will probably have to go through with it. In Poland the government of Prime Minister Hanna Suchocka, who took office only in July, is being threatened by labor unrest provoked by a coalition of former communists, angry farmers and antireform unions that have broken away from the change-minded Solidarity union. These workers grew used to communism's guaranteed employment at relatively high wages, and fear they are falling behind employees in the fast-growing private economy. They have struck for wage increases that, in the opinion of Lech Walesa, the founder of Solidarity who is now President of Poland, could be met only by "printing money." That, says Walesa, would "ruin all our achievements so far." Suchocka's government has resorted to the hard-boiled capitalist expedient of threatening to fire strikers at an auto-parts plant and a coal mine. The threat helped end those strikes, but future relations between labor and management are still problematic. So, in fact, is the fate of political and economic reform throughout the former Soviet bloc. At best, its countries probably will not and cannot become carbon copies of Western capitalist democracies. At worst, they are unlikely to revert to old-fashioned Marxism-Leninism in any form that would threaten a new cold war. But whether the hybrid political economies that do evolve represent a net gain for political and economic freedom or a descent into a kind of authoritarian chaos remains an unsettled question. </body></article> </text>