Andropov grapples with communism's economic flaws

From the beautiful beige Danube to Peking's Great Hall of the People, the leaders of the communist world are experimenting once more with reforms. Ironically, the men in the Kremlin seem to have more trouble than their supposed pupils in other capitals at making reforms stick.

It has been 30 years since the end of the long Stalin era set loose a wave of attempts to change the way the centrally planned and centrally ruled Marxist empire runs.

In those three decades, the outposts of the empire have had considerable success at breaking away. Hungary, for example, has quietly renounced Stalinist central planning in a series of reforms that include profit sharing in factories and collective farms and decentralized management. This fall the Budapest parliament is expected to vote on a law that would require multiple candidates for national and local elections. The man who masterminded all these changes, Janos Kadar, was handpicked more than 25 years ago by today's Kremlin boss, Yuri Andropov. Economic changes in Peking

Even Peking - which clung to a Stalinized economy long after it split from the Soviet bloc - has decentralized management, installed profit incentives, and encouraged some private enterprise over the past four years.

But back at the Kremlin, it has been one step forward, one step back for economic reformers. Ever since Nikita Khrushchev's de-Stalinization speech of 1956, Kremlin leaders have been caught between the need for reform and the need to keep reform from getting out of control. Invariably, caution has carried the day. Plans for moving away from Stalin's unbending emphasis on rigid central planning and heavy industry have come unstuck.

Now Yuri Andropov has begun to unveil his program for modernizing the stagnating Soviet economy. He has made four major moves in the eight months since he took office. They consist of one stick and three not very big carrots. Unless there are more decisive steps to come, Western specialists on the Soviet economy believe his modernization program may be undermined by the entrenched central planning bureaucracy. That was the fate of the Brezhnev-Kosygin economic reforms of 1965-70. Crackdown on absenteeism

Andropov's first stick-and-carrot came last winter. The stick was his crackdown on worker absenteeism and malingering. His first carrot was an increased supply of consumer goods in the stores (brought in largely from Eastern Europe).

The second and third carrots were unveiled last week.

Carrot No. 2: a new labor-reform law, put into effect Monday, which allows factory-worker brigades to vote for their own leaders, distribute production bonuses, and have some say in factory planning.

No. 3: a managerial reform, announced last week, that is to begin Jan. 1, 1984. It decentralizes management and allows use of profits at the plant level - but only in a few selected industries.

This package of Andropov reforms leaves in its wake a major mystery: Why has the man who installed and has long been a mentor to the Soviet bloc's most skilled reformer - Hungary's Kadar - failed to copy the most crucial part of Kadar's successful economic reforms?

The heart of Kadar's de-Stalinizing was the use of price setting by individual managers rather than by central planners. Such pricing is the key to moving a Marxist economy closer to the responsiveness and incentive drive of a supply-and-demand market economy.

Moscow gossip has long recounted horror stories of central planning gone awry. Like the steel flatware factory that fulfilled its quota for table knives but had no plan for spoons - with the result that restaurant customers in Moscow (and presumably Omsk and Tomsk) had to stir tea and eat borsch with knives. Or the fertilizer factory that poured out phosphates in a veritable fertilizer mountain because no Moscow planner had included a bag factory or a railroad spur in the same five-year plan.

In contrast, the effect of loosing supply-and-demand in a Marxist economy can be seen in a story this correspondent was told by a leading Peking economist. Encouraged by Chairman Deng Xiaoping's decentralization program, with its opening for small private enterprises, two young men from a furnituremaking commune set up their own custom-furniture business. Soon after its start they had a backlog of six months of orders.

The presumption of Western economists is that even without such private businesses, decentralization of a communist economy would put spoon and fertilizer decisions in the hands of a plant manager. He would know better than a Moscow ministry bureaucrat that his fertilizer had to be bagged and shipped, not just produced in the right tonnage. And his pricing would help determine the market.

Why, then, has Andropov's Politburo held back? Why has the longtime supporter of Kadar's reform system adopted only half the Hungarian loaf?

Two opposite explanations arise from the evidence: (1) Andropov is a shrewd modernizer who plans to change the Soviet economy with such boa-constrictor smoothness that he can outmaneuver central planners who have swallowed reformers for 30 years. Or (2) he is just as shrewdly holding back because he cannot afford to challenge all those entrenched bureaucrats head-on.

It may be many months before it is possible to tell which explanation is accurate. Many Kremlinologists suspect the second explanation is the true one. To see why, it is useful to trace the Budapest connection and then examine the differences between Hungary and the center of the Soviet empire.

In the grim period during which Russian tanks crushed the 1956 Hungarian revolt, Yuri Andropov, then the young Soviet ambassador to Budapest, personally selected Kadar to run the torn country. No one other than the principals knows to what extent Andropov helped design the first Kadar economic reforms before the Soviet diplomat ended his three-year Hungarian duty in 1957.

But during the ensuing 25 years, Andropov is believed to have helped Kadar win approval for the series of departures from rigid Stalinist central planning that have made Hungary the most economically advanced communist nation. Andropov certainly must have studied all of the Kadar changes carefully and noted their success.

In his first major speech after taking power last November, Andropov listed a series of programs to reduce waste and increase work incentives that hinted of Hungarian-style reforms to come.

But when the reforms came, the heart of the Hungarian model was missing.

Two specialists on the Soviet economy, interviewed both before and after the reforms were announced, had forecast Mr. Andropov's half-a-loaf program. The reasons they listed for Kremlin caution say a lot about this and future attempts to modernize the Soviet system.

Seweryn Bialer, director of the Research Institute on International Change at Columbia University, and Marshall Goldman, associate director of the Russian Research Center at Harvard, made the appraisals. (Professor Goldman's recent book on the failure of the Stalinist economic system is reportedly a closet best seller among Moscow economists.)

Professor Bialer sees three reasons Hungary's rewritten Marxism is hard to swallow in the Kremlin:

1. Taking power away from central planners in Moscow would mean putting more power into the hands of ethnic minorities. Kazakh and Uzbek managers would gain at the expense of ethnic Russians.

2. Anything resembling a market economy would require some years of austerity for Soviet labor.

To move in the direction of a supply-and-demand economy, Kadar's party gradually had to remove rigid price controls. This meant removal of rent and food subsidies. As such basic family budget items rose to a market level, Hungarians were pinched. After seeing the reaction of Polish workers to imposed austerity, Andropov and company were obviously reluctant to run a similar risk.

3. The USSR, to an even greater extent than the United States, habitually thinks of itself as a great internal market not needing much trade outside its bloc. Just as Washington feared West European overdependence on imported Soviet gas, so Moscow fears becoming overdependent on trade with the West. Although Moscow planners are interested in acquiring Western high-tech goods and grain and need to earn dollars by exporting, they worry that their economy might become too reliant on Western trade. So they see no need to encourage the kind of consumer-responsive economy that would become more intertwined with Western markets.

Enlightened Kremlin leaders understand that Hungary, as a Central European crossroads, lives by trade. Some 40 percent of its gross national product is involved in exports and imports. So it must have an adaptable consumer-oriented economy that can produce goods acceptable in advanced Western societies.

But, as Professor Goldman reports, Russians make a clear distinction between Hungary and their own country. ''I asked 10 or 15 Russians I know why they can't introduce Hungarian reforms. They all said something like 'Hungary's a small country. But we have too much to keep our fingers on. Hungary is very homogeneous. We aren't.'

''The unspoken message there,'' he says, ''is that Russians don't want to risk giving leverage either to foreign traders or to internal minorities that make the USSR nonhomogeneous.''

Both Professors Goldman and Bialer point to another reason for the relative timidity of the Andropov reforms: The former KGB chief must have studied closely the reasons the last great Kremlin reform program, in the late 1960s, ran aground.

Those '60s-era reforms were first proposed in 1955. The controversial Soviet economist Yevsei G. Liberman suggested decentralization of industry, including profit incentives and independent price setting. His ideas were given official recognition under Nikita Khrushchev in a 1962 Pravda article. But it was not until 1965, under the aegis of Brezhnev's colleague, Premier Alexei Kosygin, that they were launched as official policy. Five years later they had been undermined by bureaucratic opponents and inflation. The reforms were abandoned. Liberman recanted and became a nonperson.

That triumph of the Stalinist system over reformers must have had an impact on Andropov thinking. It may help to explain why he has chosen a ''test industry'' approach and is leaving pricing in the hands of Moscow's central planners. It may also explain the delay in announcing the reforms.

But Professor Goldman argues that diluted reforms, instead of placating the bureaucrats of central planning, may allow those conservatives to retain their power once more. Goldman likens the piecemeal Andropov approach to a nation converting from left-side-of-the-road driving to right-side driving.

''If you try to do that by saying we'll drive on the right on Mondays, the left on Tuesdays, and so on, you're heading for a lot of collisions.''

Both professors say that the skillful new Soviet leader may have a phased program in mind. Further stages of the reforms may be unveiled. But they agree that the step-by-step approach also gives entrenched opponents of change a chance to erode the new program.

Mr. Andropov appears to have strong support from most of his Politburo colleagues. US analysts believe this support is largely a product of Leonid Brezhnev's longevity in office. A State Department specialist observes quietly that ''Brezhnev's stagnant hand weighed on the hierarchy for so long that all Kremlin factions knew some new ideas had to be tried. So they are relatively united behind Andropov's program.''

Just why can be clearly seen in the dismal Soviet productivity and economic growth of the past decade.

Even more worrisome to Kremlin leaders than these dwindling numbers is lack of flexibility in the economy. Stalinist planning has led to what a Russian in New York once described as ''a military-industrial complex that would make President Eisenhower's hair curl, if he had any.''

The USSR has ''buried'' the US in steel, cement, coal, oil, and tractor production figures. But those statistics mean little in a world where steel is overproduced and dumped, oil is in glut, coal is not in much demand, and tractor production doesn't save Moscow from having to import grain.

(Before tractors, Russia was a net exporter of grain. With massive tractor production, it is a net importer. Goldman points out that one Russian peasant can feed himself and four other people. One American feeds himself and 49 others , even when holding down production.)

So, like the sorcerer's apprentice, the Soviet Union goes on churning out steel but can't adapt to a world in which the USSR needs a computer-electronics industry, a tool-and-die industry, a pollution-control industry, and many other sophisticated industrial sectors. The flood of steel encourages the building of missiles, heavy machinery, submarines, a massive merchant fleet, and pipelines. But lack of high-tech industries leaves those weapons, ships, factories, and pipelines without the most modern controls and computer-designed efficiency.

Given this set of problems, Mr. Andropov appears to be taking a big risk with piecemeal reforms. His detailed KGB knowledge of how the bureaucracy works may help him defeat efforts of entrenched central planners. But past history indicates that the Stalinist pattern is still hard to break 30 years after that dictator's departure from the office Andropov now occupies.