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Gorbachev’s Bottom Line

1.

During a recent visit to the Soviet Union,1 a small group from the Council on Foreign Relations, including myself, met with senior Soviet officials, Andrei Sakharov, and various dissidents, and had a three-hour session with Mikhail Gorbachev. My impression of the General Secretary was of a new chief executive officer: intense, dynamic, restless, driven, tough, but, emphatically, not just a chairman. Also, by Soviet standards, he is a young CEO. He is not subject to mandatory retirement—at least not for reasons of age. Therefore, he can take a longer view than some of his predeces sors. Indeed, it will take a long time for him to achieve even a fraction of what he has set out to do.

I believe that he is a chief executive who knows that his country is fundamentally not competitive in the world, and he foresees an economy that is both more competitive and more connected with the global economy. At the same time, this intense, dynamic man—to all of us a man with a commanding personality who could be a leading politician in any system and who no doubt is keeping an eye on some of his wolf-like comrades—is understandably anxious for short-term results so that he can consolidate his power and gain time to present his full vision of the future. So his problem in the economic and commercial spheres is to reconcile his long-term vision with short-term political necessities.

For the present, Gorbachev is trying to resolve this problem by squeezing results out of the economy through changing the behavior of workers and managers, what Soviets call the “human factor.” (We heard an old saying attributed to Soviet workers: “They pretend to pay us and we pretend to work.”) What is happening is a kind of productivity jawboning. The prescription, as I understand it, starts with a heavy dose of unrelieved criticism for which, ironically, dissidents formerly could have been put in jail. In my experience, there is now an unprecedented degree of self-criticism by Soviet officials—as well as exhortation and moral persuasion. I also found these Soviet officials far less defensive, ideological, rigid, and dogmatic than they seemed on my last visit in the early 1970s; now they appear much more pragmatic and flexible.

During the first year at least, the officials to whom I spoke said they have increased annual Soviet productivity to over 4 percent, perhaps twice the rate during the previous five years. They aim to increase productivity by a general program of “intensification” or modernization, including incentives for workers and managers, a restructured bureaucracy, greater decentralization in implementing plans, conservation of production inputs, and increased use of science and technology in the economy. For the longer term, however, they know they must invest more in capital equipment to improve productivity.

With respect to near-term results, they say that alcohol consumption is down by a third, accompanied by a 25 percent drop in violent crimes and a 30 percent drop in accidents. Drinking on the job is severely punished. The only example our group could find of a new disincentive in a society that seems to be moving toward incentives is that salesmen now get no bonus points for selling vodka.

Exhortation also marks the drive for quality. In their franker moments, Soviet officials acknowledged that the military and space programs are about the only sectors of their economy that can consistently obtain high quality in production. Yet they also realize that in order to be globally competitive they must dramatically improve the quality of products. And they are trying to achieve this through centralized quality control agencies, posters, and all kinds of exhortations.

I found Gorbachev’s overall goals daunting, if not utterly breathtaking: for example, he told us that his objective was to make the Soviet Union a net exporter of food in this century. The great question is whether the new goals are realistic and workable. But we should not make the mistake of underestimating the seriousness of recent efforts to reach them or of Gorbachev’s commitment to them, and his intensity.

I believe that Gorbachev—along with his closest colleagues—rates his country’s economy as half-backward (in industrial technology) and half-sophisticated (in military technology). And even in the military sphere, he fears that his country could not compete if the ossification of the Soviet economy were permitted to continue indefinitely. He knows that their old theories (like the “big push” theory, which concentrated investment in heavy industry) no longer work in the more sophisticated and dynamic global economy. As Gorbachev has said else-where, “There is no longer a place to hide.”

During our discussions, the question from our group that seemed to engage Gorbachev the most, and to elicit the strongest positive reaction was this one: “Twenty years from now, how will history judge our two countries? Is it possible that other, far nimbler countries that are more concerned with far-sighted choices about their long-term economic destinies will make our two countries look like a couple of dinosaurs circling each other in the sand—militarily powerful to be sure, but more or less obsolete, and even a bit irrelevant, in a global economic sense?”

Some may conclude that Gorbachev’s emphasis on domestic reform—particularly on economic affairs rather than on foreign policy—means an abdication of his priorities as a great power on the world scene. I think not. Rather, I think Gorbachev knows that in the new world political economy it is most unlikely that a weak economic power can remain a strong global political and military power.

One might assume that Gorbachev is aware that he risks a revolt by the various conservative elements within the Soviet system. It is likely, however, that he sees further into the future, and perceives the even larger risks of doing nothing. Some officials even argue that the desultory trends that he inherited in the Russian economy showed that he had no alternative to undertaking reforms.

Gorbachev’s reforms display a kind of incentive approach to decentralizing and “democratization” of the economy. Incidentally, we should not be confused about what is meant by “democratizing.”2 Its main goal is not freedom for its own sake, but the kind of freedom that is required for the move toward market incentives and toward the principal goal of greater efficiency and competitiveness. There is no question of allowing any competing political group to be organized, let alone challenge the Party’s ultimate authority.

At the same time Gorbachev is calling for secret elections not only of Party officials but of managers as well. One official told us of a plant in Riga, which advertised for new plant managers. Amazingly, there were two thousand applications. Although the election of managers not only furthers “democratization” and, depending on how the nominating process works, may serve to diffuse Party power, it may also arouse the animosity of the Party organizations in the affected regions. A deeper question is whether the stimulus of economic freedom will get out of hand and escape from the political constraints that Gorbachev wants to maintain. Given the ethnic and racial diversity in the Soviet Union, I see special political risks associated with the geographic decentralization that will be needed for economic reasons. Indeed, while much is said about retrenchment in the central bureaucracies, the deepest retrenchment is far more likely to be in the republics and in the local bureaucracies. Clearly the system cannot be reformed unless it is reformed at these levels.

I will give three brief examples of the kind of reform Gorbachev is talking about. In each case I will compare what is now being done with the situation I found in 1972 following that year’s summit meeting, when, as secretary of commerce, I visited the USSR for negotiations with a group of Soviet officials, including then General Secretary Brezhnev. The three examples of peristroika—literally “reconstruction” but used in the sense of “new way”—are attempts to rationalize the Soviet economy by eliminating the most glaring irrationalities that Gorbachev’s predecessors tolerated. They may also be seen, although it is too early to be confident of this, as attempts to change the fundamental Stalinist system of the 1930s, in which the state exercised a total monopoly of control.

As a first example of peristroika, I should mention some of the reforms in agriculture. In August 1972, when we were negotiating trade and other agreements, we had the opportunity to visit the southern part of Russia and drive through vast farming areas. For mile after mile, we saw all kinds of expensive farm equipment standing idle in the fields. That night at dinner I asked a Soviet minister how he could possibly reconcile the USSR’s agricultural situation—including an acute shortage of capital and agricultural productivity only 11 percent of that in the US—with allowing such expensive equipment to lie idle. The answer, perhaps stimulated by a few vodkas, was that “you’ve got to understand how our system works. The minister in charge of making farm equipment is not judged by who uses it but only by meeting his production goals.” In other words, “That’s somebody else’s department.” This leads to a strong, perverse incentive to selectively overproduce, which is characteristic of the Soviet system.

What is happening now? We heard discussions about team contracts on the farms by which the government rents the land and equipment at low prices, and provides other inputs to the teams at specified costs, and permits the members of the team to keep the revenues from up to 25 percent of the output of these farms. In many places, the word “team” serves as a euphemism for family farming. Asked where they can sell what they produced, our hosts replied, “anywhere they wish.” You ask at what prices, and they say at whatever price they can get for it.

A typical example is meat. Meat in the state stores is often of poor quality, and it is not always available to consumers, who must often stand in long queues when they can obtain it. They have long permitted—and Gorbachev has expanded—the sale of privately produced meat (in so-called farmers’ markets) that is fresher and of better quality; interestingly, these private prices are as high as five times those in state stores.

Gorbachev has now created intermediate markets between the state stores and farmers’ markets. These are called “cooperative stores,” and they have reasonably good products, shorter queues, and prices somewhere between the other two kinds of outlets. (Incidentally, we inadvertently heard a bit of testimony on the integrity of Soviet government statistics: if you note the Soviets’ pride in their low inflation rate and ask which meat prices they put into government statistics on inflation, they answer that they use “state prices” and not the “private prices.”)

A second example of Gorbachev’s economic reforms concerns some seventy so-called “enterprise centers” which are to be established in the twenty to thirty ministries. These are supposed to be profit centers for sales at home and abroad, handling about 65 percent of all exports. Their managers will have the responsibility for making profits wherever they can. In the past, it is said, managers resisted exporting. Now presumably they will fight to get responsibility for exports. They will be expected to manage international product planning, technology, and, most importantly, marketing. As one minister put it, managers will have to “satisfy the customers, not the ministries”—a dramatic reversal if it is acted upon.

  1. 1

    As part of a group sponsored by the Council on Foreign Relations that included Harold Brown, General David Jones, Jeane Kirkpatrick, Henry Kissinger, Charles Mathias, and Cyrus Vance, as well as senior officials from the council.

  2. 2

    Sakharov warned us to remember this was a “multilayered, contradictory” society. We heard of one such contradiction while we were in the USSR, when a request to allow Naum Meiman, a refusenik, to visit his dying wife in Washington was turned down. We were told this eighty-year-old man might still have state security secrets, even though he had not been exposed to such secrets for over thirty years. His wife died without seeing her husband.

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