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Gorbachev's economic reforms -- what will they accomplish?

By Douglas MacArthur II / May 15, 1986



DURING a recent visit to the Soviet Union, I was struck by the Soviet news media's euphoric stress on Mikhail Gorbachev's economic reforms and the criticism of past economic practices. These twin points were also emphasized by the Union of Journalists of the USSR with whom we met. So a brief look at these reforms and what they may accomplish seems not amiss. First, why are reforms necessary? Because the Soviet Union is not competitive in the world marketplace. Unlike the industrialized nations of the West, it never really experienced the great revolution in industry that swept Europe and North America at the turn of the century. It jumped from a semifeudal, largely agricultural economy that prevailed before World War I directly into the communist central planning system after the 1917 revolution. It is true that for three decades after World War II it experienced accelerated economic growth, reaching about 5 percent in 1975. This, however, resulted largely from imports of technology, utilization of natural resources, and the transformation from a largely agricultural to a still noncompetitive industrial economy. Since then its growth has steadily shrunk to 2 percent a year, or a bit less.

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The cause of Soviet noncompetitiveness is of course twofold: the low productivity of its labor force and above all its system of central planning -- the control by Moscow bureaucrats (economic managers, they are called) far removed from the marketplace. They make the detailed decisions as to types of items, quantities, and so forth for industry, agriculture, and virtually all aspects of the economy -- with one very important exception. This is the Soviet military. In a separate category, it consumes 14 percent of Soviet gross national product (double the US rate) and attracts the ablest scientists and managers for its programs. It produces first-rate weaponry, not adequately demonstrated by its less well-trained clients such as Syria and Libya.

But leaving the military aside, has Mr. Gorbachev attacked both of the above problems? No. He has dealt only with the lesser -- the low productivity of the labor force -- which he seeks to improve by removing incompetent and overage party managers, cracking down on alcoholism, and calling for more discipline from labor, which he holds responsible for low output and quality.

The main problem is not labor, however, but the inefficiency and waste of the central planning system, as contrasted with a decentralized market economy. Qualified non-Soviet sources with whom we talked all agreed that until the present highly centralized system is modified and a degree of marketplace decentralization introduced in both industry and agriculture, the Soviets' competitive economic position will remain weak. Therefore, Gorbachev will face major difficulties as Russia seeks to replace postwar industrial equipment, worn or outmoded, with up-to-date foreign technology at a time when lower oil prices, the demands of the military, the European Community embargo on imports of Soviet agricultural products, and the need for large food imports have substantially reduced available foreign exchange. The problem could become more complicated, because at the same time, the Soviets are seeking to tighten their economic grip on their European satellites, which, unlike the Soviet Union, had experienced in varying degrees the revolution in industry and the operation of a market economy. This could cause increased restlessness in satellites that already seek modifications in strict central planning to become more competitive so as to increase trade and imports of technology from the West.