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                                                                                FORMER SOVIET BLOC, Page 52

Counterreformation


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.