Policies to revive the Soviet economy confront an array of deep-seated
problems, including:
None of these fixes can produce startling gains, but taken together they
could sustain a gradual improvement in economic performance. To the
extent that programs succeed, conflicts over military and civil claims
on resources would ease. Failure would require Gorbachev to make tough resource
allocation choices.
Attachment
Issues Paper Prepared in the Bureau of
Intelligence and Research2
GORBACHEV’S CHANCES FOR IMPROVING THE SOVIET
ECONOMY
Since becoming General Secretary in March 1985, Gorbachev has made clear that his
priority task is to revive the Soviet economy. Its relatively poor
performance over the past decade has the leadership worried that a
problem-plagued economy will jeopardize the USSR’s strategic interests over the
longer term. To get the economy back on a fast track, Gorbachev has launched a
wide-ranging program that addresses its major shortcomings. His
program leaves room for some enlargement of the private
sector—principally for providing food and consumer services to the
population—but focuses on advancing the technological base of the
economy and improving planning and management. We see no evidence
that Gorbachev is
contemplating systemic changes along the lines of market socialism,
or changes in the present system of administered prices. In his
search for economic efficiency he is looking for a self-regulating
mechanism with which the center can maintain control.
Gorbachev’s Economic Strategy
Gorbachev outlined the major
elements of his strategy—a mix of policy and administrative
changes—in his June 11 speech on science
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and technology.3 He plans to move on four fronts,
seeking shifts in investment policy, application of new technology,
changes in administrative controls, and better management.
Gorbachev’s goal, which has
eluded his predecessors, is for the economy to achieve a fundamental
improvement in productivity growth so that it can simultaneously
meet the USSR’s perceived needs
for increased investment and defense spending and higher living
standards. He hopes to accomplish this by accelerating the
modernization of Soviet industry—specifically by focusing on
retooling existing capacities at the expense of new capital
construction, by continuing Andropov’s campaign to heighten labor discipline,
and by improving economic management.
1. Change in Investment Policy. Gorbachev rejected the draft Five
Year Plan for 1986–90 in his June address, instructing the planners
to provide for the transition to “intensive” growth and to
concentrate investment in priority areas—especially in machine
building. He said that continuation of the old, “extensive” growth
strategy would require increases in the output of fuels and raw
materials, capital investment, and the labor force that were not
possible.
2. Emphasis on Science and Technology. The key
to Gorbachev’s “intensive”
growth strategy is the mass infusion of advanced science and
technology into the economy. Specifically, he sees the acceleration
of technological development as the means not only for raising the
level and quality of output, but also for achieving economies in the
production process itself. These savings—as distinct from reduced
costs associated with more efficient management—would include
reduced consumption of factory inputs associated with design
improvements, use of new, more energy-efficient machinery, and
increased automation. Gorbachev hopes to implement his S&T policy with
a strengthened incentive system, which would reward innovative
managers who successfully introduce new technology into the
production process. He
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also is putting increased emphasis on upgrading the quality of
S&T personnel through improved training and better salaries.
Borrowing from Brezhnev,
Gorbachev plans to apply
to civilian industries the lessons learned in defense industries on
management techniques and advanced technologies.
3. Expanding the Economic Experiment. In its
second year, the economic experiment providing greater independence
and increased responsibility to enterprises has become one of
Gorbachev’s major
vehicles for implementing change. Now embracing some 12 percent of
industrial production, the experiment is to be extended in January
1986 to all machine-building and consumer-related ministries—those
ministries upon which so much depends for modernizing the economy
and for attracting and sustaining popular support for the program.
This would bring 50 percent of industrial output into the new
system. All of industry is to be under the new system in 1987,
according to some reports.
A recent managerial reorganization at the Ministry of Instrument
Manufacturing introduces important modifications. It reduces the
number of plan indicators used to evaluate performance, eliminates
an entire layer of management between the ministry and the
enterprises, and establishes new scientific production associations
to bridge the gap between research and production. Measures allowing
enterprises to retain a sizable portion of their ruble and hard
currency profits also are to be introduced in a number of
enterprises to promote their financial independence and encourage
production for exports. The Soviets may be placing additional hope
on the latter given the dim prospects for expanded energy exports,
which now account for more than half of the USSR’s hard-currency earnings.
4. Streamlining the Bureaucracy. Gorbachev often has stated the
need to eliminate unnecessary bureaucratic layers in the economy.
His first significant step in this direction was the experiment
introduced at the Ministry of Instrument Manufacturing and touted as
a model for the rest of the economy. It eliminates the industrial
associations which ironically were introduced in the 1960s to
promote efficiency by grouping together related enterprises under a
single management. Another major streamlining possibly in the works
involves the combining of three entire agricultural ministries and
portions of two others into a single, super ministry. If
successfully implemented, this too could become a model for the rest
of the economy. An obvious candidate is Gosplan itself, where a
leaner organization might focus on strategic economic planning
rather than remain enmeshed in minute detail. This would be
consistent with efforts to grant the enterprises more independence
and responsibility, particularly in the area of planning. It would,
however, increase the risk of plan imbalances which would have to be
bucked upward for resolution.
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Assessing Gorbachev’s Chances
Gorbachev is relying on
orthodox Soviet methods to get the economy back onto a fast track.
Indeed, the selective implementation of better technology and
practices in bottleneck sectors, appointment of more competent
managers, and continuation of the discipline campaign should lift
the economy in the short run. However, Gorbachev is likely to be frustrated in his
longer-run search for efficiency—as were his predecessors—so long as
his efforts to find the proper mix between central control and
enterprise independence precludes a role for market forces.
Even under the best of circumstances it would take time to implement
Gorbachev’s programs.
While he lambasted Brezhnev’s
regime for its inactivity, he clearly wants to avoid rushing forward
with well-intentioned but ill-conceived measures to revitalize the
economy. Indicators of Gorbachev’s success—in addition to continued gains
from the discipline campaign—will be his ability to take timely
corrective action to keep reform on track. The recent decree on
moving enterprises toward financial self-sufficiency suggests that
he has a talent for this. But the catalyst to S&T
progress—microelectronics, computer technology, instrument making,
and the whole of information science—is precisely the area in which
the USSR significantly lags behind
the West. On balance, very little—if anything—being tried now is
new. Gorbachev may be more
determined and resourceful than his predecessors, and that might be
the decisive difference.
What Success or Failure Could Mean
In a May 17 speech, Gorbachev
said that national income would have to grow by a minimum of 4
percent annually to avoid cutting back on programs aimed at raising
living standards.4 Hardly a month later,
he called the USSR’s social and
military programs untouchable. Given the constraints on investment
capital and labor, the Soviets need productivity increases to meet
their overall targets. To the extent that
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Gorbachev is successful in
raising productivity and quality of output, he will lessen the hard
choices on allocating resources among investment, defense, and
consumption. Four-percent growth would even allow a slight
acceleration in defense spending without cutbacks in investment and
consumer programs. Failure would require Gorbachev to make tough resource
allocation choices and manage the accompanying negative fallout.
