Revving the Soviet economic engine. The Soviets' failure to make enough machines has had a profound effect on their economy. The solution is to increase imports from the West.
Cambridge, Mass. — As Moscow tries to complete a final draft of the 1986-1990 five-year plan, Mikhail Gorbachev is seeking a compromise. The Soviet leader is trying to liberalize somewhat the way the economy is run (a necessary prerequisite to reviving it). But he is determined to preserve the power of the party bureaucracy and its ability to control all aspects of the economic system.
These two objectives appear to be mutually exclusive. In the words of an old Russian saying, Mr. Gorbachev wants an arrangement in which ``the wolves are fed, but the lambs are left unharmed.'' Four months remain before the 27th Communist Party Congress is scheduled to adopt the plan.
Judging by the leader's own declarations, the plan will include technological modernization and the restructuring of industry.
In June, Gorbachev said that machine building ``plays the decisive role'' in reorganizing economic policies. He recommended a doubling of capital investments in that area. The decline in the production of machinery equipment is one of the chief problems in the Soviet economy today. It is a decline without parallel in Soviet economic history.
The recent promotion of Nikolai Ryzhkov to the post of prime minister is evidence of Gorbachev's determination to modernize and restructure industry. Among the highest-ranking Soviet leaders, Mr. Ryzhkov's knowledge of the real state of the nation's economy is unsurpassed.
His appointment is significant. For the first time in Soviet history, a pure technocrat has been elevated to the position of premier. He is a specialist in the field of machine building, an advocate of introducing the most advanced methods of technology, and the author of a weighty tome which deals with the introduction of these new methods.
It is Ryzhkov who will have to handle behind-the-scenes policy debates in Moscow that are no less dramatic than are those that have taken place in Washington as the fiscal 1986 budget has been hammered out.
Soviet machine building has become less and less capable of satisfying the essential demands of the economy. As Anatoly Alexandrov, the president of the Soviet Academy of Sciences, has acknowledged, domestic producers can supply only one-third of the demand for apparatus and high-tech equipment.
Not a single branch of machine building satisfies present-day needs. One example: production of machinery for the automobile industry is declining, despite rising demand for automotive products.
The beginning of the 1980s was marked by a drop in the production of turbines, locomotives, gas- and oil-drilling equipment, diesels, electrical motors, metal-cutting machines, transportation and construction equipment, and in other important areas of machine building as well.
The decline was not only quantitative, but also qualitative. The number of new models of machines and equipment was reduced, and the share of new products in machine building declined.
If machine-building production is to satisfy real demand quantitatively and qualitatively, investment in this sector must be sharply increased.
The need for such a change is, without question, bound to become more urgent in the coming years. According to the calculations made by Abel Aganbegian, one of the leading economists in the Soviet Union, there will be zero growth in the labor force in the second half of the 1980s, and the tempo of investment growth -- now an abysmal 1 percent to 2 percent a year -- will be halved.
In the first half of the 1980s, the growth rates for the production of fuel and raw materials are just half that of the previous five-year period, and there is no reason to anticipate that things will be any better in the next five-year plan.
Indeed, for the first time in Soviet history, a five-year plan is being prepared amid severe limitations in capital, labor, and natural resources.
The planners' efforts are directed toward discovering a way to accelerate technological progress, but that presupposes the infusion of capital into machine-construction in general and in advanced technology in particular.
Under current conditions, such investment is possible only if made at the expense of other sectors of the economy. A whole series of prominent experts, including Vadim Kirichenko, the director of the research institute for Gosplan, has argued that investment priorities must be altered in favor of machine building, and have even hinted that one must tolerate short-term losses for this purpose. Yet they fail to indicate which economic sector must bear the burden of this sacrifice.
It is very difficult to see, however, just where such reductions can be made. One obvious possibility is the military, a key component of the budget. Given the current situation, however, there is no reason to expect that the Soviet leadership will be able or willing to divert resources there. And it is impossible to reduce investment in agriculture, given the chronic and serious problems that it faces.
Nor can further cutbacks be made in investment in the public sphere and social services (housing, medicine, trade, education, recreation, etc.), which have been steadily reduced since the mid-1960s and now stand at their lowest level for the entire postwar period. Although the boiling point for open discontent is significantly higher in the Soviet Union than in Poland, it would be exceedingly difficult for Soviet leaders to cut the living standard of the population further.
It is no less impossible to reduce investment in the transportation sector, which even now cannot cope with the rising volume of shipments and has become a serious drag on the whole economy.
Similarly, the worsening shortages in electrical energy, steel, chemical and petroleum products, construction materials, and coal preclude any attempt to cut investment there.
Reductions have already been made in these sectors in recent years and further ones are simply out of the question. The same must be said of consumer goods in light and food-processing industries.
It is simply unthinkable to encroach upon oil and gas industries, since these in fact are the main foreign-currency earners in the economy.
That is all the more true right now, where the energy situation has become increasingly serious, even to the point of forcing industrial enterprises to interrupt production because of breakdowns in the energy supply. Understandably, oil and gas production is vitally important for the Soviet Union and the support of its own economy, not to mention export.
Even if one grants that the Soviet leadership is nevertheless capable of diverting investment resources into machine building (at the expense of one or more of the above sectors), it will be a considerable time before these additional investments can yield any significant return and benefits.
Thus there is no reason to expect that in this decade Soviet industry will be able to accelerate the renewal of its machinery base through the efforts of its own machine-building industry.
The only available path for stopping the slide in its economy is to increase significantly its import of machinery and equipment from the West. It is precisely this tendency that we have witnessed in recent years.
The forced increase in machine imports has had a negative impact upon the development of the domestic machine-building industry.
In particular, distrust toward equipment produced in the Soviet Union has now become deeply engrained in the mentality of Soviet plant managers and executives. As a result, there is a distinct tendency to prefer imports even in those cases where a Soviet equivalent is acceptable and available.
At the annual meeting of the Academy of Sciences in 1982, President Alexandrov rebuked Soviet scholars and economic managers because ``in a whole range of scientific and technical areas [they] have up to now been too easily inclined to purchase technological methods and equipment abroad. The result has been that in such areas we have not made sufficiently serious attempts to devise our own methods and equipment, or have been too slow in doing so. In our time that could all come back to haunt us.''
Still, the gap between the demands of such officially condoned patriotism and economic reality is steadily widening.
There is every reason to anticipate a reliable, growing market for machinery and technology in the Soviet Union.
The urgent need to introduce Western technology, presumably after obtaining credits with which to purchase it, may have enormous implications for the course of Soviet foreign policy.
Some sort of thaw in relations between the Soviet Union and the United States is a necessary prerequisite to gaining access to American know-how and equipment, and it is this overriding concern with industrial modernization that should be the focus of the Gorbachev-Ryzhkov ``opening to the West.''
Dr. Boris Rumer, a fellow at the Russian Research Center at Harvard University, was chief of the economic department at the National Institute of Construction Industry in Moscow.