PERESTROIKA AT HALF-COCK
economic reform in trouble while managers' hands are tied
Moscow TAKING a friend to lunch in Moscow is not a simple matter. Never mind the battle with the restaurant doorman and the inter- minable wait for what inevitably turns out to be the only available dish — shashlik. The route to the restaurant can be strewn with complications which turn even the most trivial act in Moscow into a war of nerves with the Soviet way of life. So it was not surprising when, a few days ago, I arrived at a Moscow embassy to go to lunch with a diplomat friend and instead found myself driving him to Gosagroprom, the headquarters of the Soviet agro- industrial complex. It was snowing heavily. Traffic crawled. The round trip took the better part of an hour. Lunch never hap- pened.
The purpose of this detour was to deliver a letter. Repeated telex massages to a certain official had received no reply, and the matter had become urgent. There was no guarantee the letter would arrive if posted and the embassy driver was not available, so off we went. On arrival my diplomat friend was stopped in the Gosag- roprom hall by an elderly woman who demanded to know what he was doing there. The senior official to whom the letter was addressed had to leave his office to report to this dyezhurnaya, who in turn undoubtedly reported his contact with a foreigner to somebody else.
This way of doing business is the base from which Mikhail Gorbachev intends to launch the next major phase of his econo- mic restructuring drive, perestroika. From 1 January, 60 per cent of the country's industry and its entire transport network is supposed to function in new conditions called 'self-accounting' and 'self-financing'. Leonid Abalkin, a leading member of the economic think-tank set up by Gorbachev, describes it as 'a new conception of central- ism'. The idea is to give managers greater independence in decision-making and cut back on bureaucratic interference, increas- ing the operating efficiency of the Soviet economic machine.
Under the new economic model, official- ly 'the law on state enterprise', firms are expected to account for expenditure and to pay workers from their own income with no help from the state. Some loss-making firms will be allowed to go bankrupt. The command-order system in place since Sta- lin is to be replaced by a more flexible mechanism under which enterprises com- pete for state contracts and have some leeway for taking direct orders from cus- tomers. In theory, increased worker effi- ciency — because their wages will depend on results — will improve Soviet goods and make them more competitive in foreign markets. From export sales, Soviet firms will earn the hard currency needed to buy advanced Western technology. This will allow further quality improvements, set- ting in motion a regenerative spiral.
Yet, as Abalkin notes, 'there are cus- tomers and customers. Among their varied ranks, one has priority — the state.' As the deadline approaches, notes of alarm have begun sounding in the Soviet press. The notoriously irregular supply network emerged as one area of prime concern. Take the case of Aeroflot, the national airline, which is among the firms going over to self-financing. In December a fleet of Aeroflot passenger and transport planes was grounded in Siberia for lack of fuel. A senior aviation official, asked how many more passengers Aeroflot could transport yearly if enough fuel was available, re- plied: 'millions of people'. His prognosis just three weeks before the conversion to new conditions? 'The problem cannot be solved under existing limitations.'
The same applies in industry. If a con- tract requires enterprise A to manufacture a given quantity of widgets for enterprise B but enterprise C has failed to deliver the widget-making materials, the system breaks down. Under a ministerial alloca- tion system, described even by Soviet economists as 'departmental monopolism', enterprise A has no alternative supplier. Enterprise B, with no widgets for inclusion in its final product, rapidly accumulates debts to its other suppliers. The new rules stipulate that banks are empowered to pay enterprise B's creditors before releasing wages for workers, i.e. no pay cheque at the end of the month.
The crux of the matter is prices. The Soviet leadership has put off the economi- cally essential but politically delicate mat- ter of price reform until 1990. In the meantime, most prices will continue to be set from above, and all will be subject to state guidelines. This undercuts the linkage between a firm's performance and the funds it has available for paying its work- ers. It also ensures there is no hope for Soviet industry to begin functioning in anything resembling a real market.
Under these circumstances, the radical economic reform promised by Gorbachev appears to have been considerably watered down at the outset. Granted, he has to contend with an entrenched class of appar- atchiks intent on clinging to the privilege to which they are accustomed. If serious economic streamlining was on the cards, these ministerial managers would be the first to go.
But given the current balance of power, the main category of losers looks like being the industrial managers. Unable to set their own prices in terms of production costs and the desired margin of profit, required to fill state orders with little real scope for independent action, their hands are tied by the constraints of the new system. But at the same time the political heat is mount- ing, with the party machine expected in- creasingly to squeeze managers to produce results.
Gorbachev needs evidence of improved economic performance to show that pere- stroika is working. So far, his reforms have failed to increase the meagre supply of goods available in the state shops. But the structure of the law on state enterprise almost guarantees its failure. Under real conditions of cost-accounting, those firms not economically worthwhile would be forced out of the market because their prices would be too high for them to compete. State price-setting will prevent this, as will the retention of the concept of `temporary planned operation at a loss', under which the state supports loss-making firms with little regard for their qualifica- tion `temporary'. Some lay-offs are bound to occur. But the Soviet constitution bans unemployment, and managers will have little scope for cutting costs by trimming their workforce.
Managers will also have to contend with a severely underdeveloped business sup- port system. Soviet office technology lags years, or rather decades, behind that of the West. Photocopiers are virtually non- existent. There is only the most basic computer capability. At the state bank, for example, personal accounts are done by hand. Telephoning, even inside the coun- try, remains a problem. 'The postal system is so bad that when the Russians have a letter for us, they call and ask us to collect it,' a Western banker confided to me.
If reconstruction were applied to the service and communications branches, the Soviet economy as a whole would benefit.
But the country is not ready for this, despite fervent calls by the Party for efforts to develop the computer industry and other forms of hi-tech. Clearly the Soviet Union is capable of these advances: the military already possesses the most soph- isticated technology. But extending con- temporary techniques to the civilian sphere is another matter: the legacy of the Stalin era imposes its demands. Telephone calls must be monitored. International mail must be read. Copying equipment could allow the dissemination of subversive material. So the result is reform by half- measures.
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