Western scholar's view on what Gorbachev will do to improve economy

Why is the economic performance of the Soviet Union lagging? And what will Mikhail Gorbachev do about it? Ed. A. Hewett, a senior fellow at the Brookings Institution and an expert on the Soviet economy, offers three fundamental reasons for Moscow's economic problems:

1. There's not enough competition.

The Soviet system consciously attempts to minimize competitive pressures on enterprises. Central planners carefully designate specific suppliers for specific buyers. All the state-owned companies in an industry are supervised by the same ministry, and ministry officials have no reason to encourage competitive battles.

In most cases there is greater demand for products than there is supply of those products. It's usually a seller's market. Moreover, the government attempts to minimize competition from imports.

If Soviet enterprises spend more money than they earn from sales or services, the government makes up the shortfall automatically. Companies do not go bankrupt, though incompetent managers may be demoted.

2. There's too much employment security.

The demand for labor exceeds the supply because of ambitious plans from above and because enterprises are so secure. So companies are reluctant to discharge workers. If a worker is released, he knows he can easily find another job. This extraordinary job security weakens the incentive to work hard and productively.

3. There's too great centralization of decisionmaking.

Soviet planners send each enterprise detailed targets for its operations regarding input, output, technology, new investment, environmental controls, and so on. Because planners cannot possibly know all they need to know about the enterprises, there are bound to be inconsistencies among the targets they set. Therefore, enterprises must choose which target to accord priority. That target has usually been output, because this has been the key criterion of the ministries. The enterprises must answer more to the ministries than to customers.

Here is what Mr. Hewett thinks Mr. Gorbachev will do about these economic impediments:

Reviewing Gorbachev's record as party secretary for agriculture, Hewett figures the new general secretary will make some practical but not radical reforms. In the food program of 1982, for example, the government granted some administrative power to the smallest localities to deal with the agricultural and food industries. The program also sought to raise the qualifications for agricultural managers.

But the program did not alter the basic powers of the ministries in Moscow dealing with agriculture -- the ministries of food, of agriculture, and of industry (farm machinery).

Mr. Hewett, in a recent telephone interview, guessed that Gorbachev will take practical but not radical measures:

Within the next year he will retire a number of senior ministers or assistant ministers, many in their high 60s or 70s, and replace them with younger, more competent officials. Mr. Gorbachev, Hewett says, has ``an obvious distaste for bureaucracy.''

Late this year or early next year, around the time of the next Communist Party congress, Gorbachev will move forward with more reforms along the lines of those experiments begun by Yuri Andropov early last year.

Gorbachev supported those experiments, granting more autonomy to industrial enterprises in five ministries. The ministries sent less detailed plans to the enterprises. And, by making the enterprises agree on contracts that set output or other requirements, the government hoped to make the managers more accountable for their actions. The managers have wider authority over budgets, wages, bonuses, retention of profits, and investment. This system was reviewed by the Politburo in August and extended to 24 more ministries in January. It now covers some 2,300 companies representing 12 percent of industrial output.

Under this program, bonuses for workers and managers hang on complete fulfillment of the contracts. These contracts, for a large enterprise, could number in the thousands. Managers get a 15 percent bonus with 100 percent or better performance. Workers lose 3 percent of their bonus for every 1 percent failure in meeting the contracts.

Hewett sees some difficulties with this system. For example, some newspaper items have indicated that managers will sign only contracts that can be easily met.

Hewett believes that Gorbachev will also encourage public discussion about economic policy. The party chief addresses the press directly, criticizing its blandness. ``It is a clear invitation for controversy and frankness. I expect it to be a very interesting year because of the information this generates about the economy.''

All these changes, Hewett maintains, deal with some of the symptoms of the problem and might have some effect. But he figures they do not tackle the fundamental problems. They don't provide any incentive to enterprises to meet customer needs, nor do they encourage innovation.

Gorbachev makes the connection more clearly than other Soviet leaders between the country's inability to innovate and its national security, Hewett says. He is afraid of falling behind American technology in such areas as ``star wars.''

The Soviet problem boils down to this: Under the market system, people have the freedom and incentives to innovate and work hard. Soviet leaders would like the fruits of free enterprise but are reluctant to introduce greater freedom, fearing it would undermine their power.

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