Socialism, Perestroika, And The Dilemmas Of Soviet Economic Reform

John E Tedstrom

• Publisher: Routledge
• Year: 2019
• ISBN:
  9781000312003
• Edition: 1
• Topic: History
• Subtopic: World History
• Index: History

This book highlights that Soviet economic planners and politicians must come to recognize the need to make fundamental changes, not simply incremental refinements, in the failing Soviet system. It examines the dynamics of the process of perestroika and the complexity of individual economic issues.

1
How to Think about Perestorika

Robert W. Campbell

There are many ways to think about perestroika, and in following what is happening in the USSR and considering the possible outcome multiple perspectives may be useful.

THE LONG-RANGE PERSPECTIVE

First, perestroika can be viewed as a long-term, multidimensional process—one that will take more time and affect the societal structure of the USSR more widely and deeply than its proponents originally intended or probably realize even now. Fundamentally, it is an effort to modernize socialist society, to bring it into the twentieth century, and to do so—it is hoped—by the time the twenty-first century arrives. A process that goes beyond mere decentralization and marketization of the economy to take on something like the task of "societal institution-building," perestroika will ultimately require a whole new understanding and philosophy of how a society works. One of Soviet leader Mikhail Gorbachev's themes has been novoe myshlenie, or new thinking, which conceivably has greater potential for stimulating change than does perestroika itself.

From another angle, perestroika can be thought of as a new round in the age-old effort by Russian rulers to catch up with, and create the basis for competing with, the West. The history of that effort is an ambiguous one, alternating between high-pressured, superficial, and eventually self-defeating attempts to catch up, such as those of Peter the Great, and attempts to create the prerequisites for modernization through more fundamental emulation of Western institutions. Perestroika may be interpreted as a return to the latter approach after the momentous interruption of the Great October Revolution and Stalin's forced industrialization under central control.

Seen in this way, perestroika involves modernizing the political and social spheres of the nation's life as well as the economic sphere. It means some move towardsconstitutionalism,legitimationoftheParty's leadership role on the basis of shifting from a zero-sum concept of political power (we/they, kto-kogo) to a variable-sum concept, and creation of the conditions for "a civil society." Important Soviet reform thinkers who have spelled out this vision are Leonid Abalkin,¹ Tat'yana Zaslavskaya, and Boris Kurashvili.² Interpreted thus, perestroika involves an extensive resort to privatization, not only with respect to economic decisions and rights but also with respect to many other kinds of decisions and rights.

In the economy, reform means "creeping marketization." The word "creeping" is meant to convey the notion that the reform architects will be driven to widen progressively the sectors and functions of the economy within which market processes determine the production and allocation of goods and resources. Marketization must go beyond con trol over just current decisions about production and allocation and extend to control over decisions about investment, foreign trade, and utilization of the society's capital. The last two extensions imply an open economy and separation of ownership and control by "unbundling" the collection of ownership rights that come under the heading "socialist property." This separation or unbundling will require the creation of various kinds of financial instruments and contracts to permit shifting some of these rights to private individuals and institutions and will have to entail the marketization of these rights as well. This last step is an important component of privatization.

Finally, as progress is made on marketization two additional problems will inevitably arise—i.e., equity in income distribution and macrostabilization. Solving these problems will require the modernization—and, in many cases, the creation from the ground up-of institutions for conducting fiscal and monetary policy.

This is the agenda for the long-term program whether Gorbachev and his reforming allies have read to the end of it or not and whether they acknowledge it or not. As for acknowledging it, the impression is that the political actors who are pushing reform see further ahead than they are always willing to state for public consumption. Moreover, what they have been willing to reveal of their vision often implies a deeper and more pervasive set of changes than they seem to realize. In any case, all these elements of the long-term program for economic and societal modernization have surfaced in the discussion and debate surrounding perestroika, even if many of them are still controversial at this stage and even if the most far-reaching suggestions have not yet affected policy or institutions.

This interpretation of perestroika is based in part on the experience to date of the East European countries and China. Some of these countries have been working at reform and modernization longer than the USSR (twenty years already for the Hungarians), have thought reform through more nearly to the end, and have learned more about the necessary scope of an effective reform. The East European reformers certainly did not envisage the whole program at the outset. They were pioneers, who had to learn by doing. In addition, they always had the USSR looking over their shoulder to curb adventurism. There is little reason to believe perestroika in the USSR will necessarily recapitulate this process in the same sequence or on the same time scale. It is evident that some phases have already been telescoped in the USSR—glasnost' came earlier than it did in Eastern Europe, and political reform is starting earlier in relation to economic reform than it did in Eastern Europe and in China. The Soviet reformers are free to chart whatever path they can persuade the elites and the population to accept. Though the Soviet case has numerous distinctive features, the USSR can learn from the experience of the pioneers, and it is possible that reform there may proceed faster and more directly than it did in Eastern Europe.

The implications of what hasbeen said so far are thatperestroika will take a long time, that it is somewhat groping in its development, and that it may end up at a destination somewhat different from that now intended. With experience, the Soviet leaders will realize that the agenda stretches beyond current notions of what needs doing. All this means that it will be impossible to evaluate perestroika on the basis of an annual balance sheet of its progress or even on the basis of a balance sheet of Gorbachev's administration as a whole, should he be dismissed somewhere along the way. As an evolving process, perestroika ought not to be impatiently judged by taking current programmatic statements as a yardstick or by seeing it as a transition to be completed by, say, 1995 that can then be rated a success or a failure.

The objection to this long-range view of perestroika will doubtless be something like the following: "If Gorbachev and his successors let reform proceed as you suggest, what then would be socialist about the kind of society to emerge? Gorbachev does not intend to preside over the liquidation of the socialist system, and it will be impossible for the process to go as far as you say." The answer to "what then would be socialist about the kind of society to emerge," is—though it is unlikely the leaders of socialist societies are ready to accept it openly yet—that socialism as it has been understood in the Soviet Union is mostly an illusion. The fundamental socialist goals come down to some fairly general shibboleths—social justice, abolition of exploitation of man by man, arrangements that ensure "production for the sake of people, rather than for the sake of profit" (socialist ideologists have always mistaken the latter as the end rather than the instrument of the market economy) or "production for the sake of people rather than for the sake of production" (the practical outcome of the Soviet system was to reverse this order), and "socialist abundance." The shibboleth that is probably most explicit in the definition of socialism is "public ownership of the means of production." The irony is that in the USSR and elsewhere people are coming to see that socialism's ultimate goals are best served not by "public ownership of the means of production" but by arrangements that guarantee everyone access to the decision- making processes in the two great spheres of social life—the economy and the polity. In other words, the best way to guarantee efficiency and equity is to institutionalize some variant of the market process and some variant of political democracy. Winston Churchill did not propose to preside over the liquidation of the British empire, but under the press of objective circumstances that empire is gone.

THE SHORTER-RANGE PERSPECTIVE

The above is the long view of "how to think about peres troika." But there ought to be a shorter-range view as well, a sense of what to focus on in the more immediate future. What is actually being done? How fast can the process go? What about sequences? What about alternative routes from here to that distant point on the horizon? Which obstacles should be outflanked, and which directly assailed? The treatment of this shorter-range perspective that follows is organized around issues that must be resolved and tasks that must be undertaken. What are some of the most important strategic and tactical issues in peres troika, and how should they be thought about?

Marketization

It is taken as axiomatic here that real reform must involve marketization. If the reformers want a significant improvement in performance, the reform must cross the threshold between administrative decentralization and marketization. Underlying this view is the conviction that "perfect administration" of the economy is not attainable, mainly because of the game-like character of the relationship between the managers and the managed, between the central authorities and the enterprise-level executors of commands. An asymmetric distribution of power between the top and bottom of the administrative hierarchy (with formal authority concentrated at the top and with information, which confers a less explicit but effective form of power, in the hands of the managers) results in a defective bargaining structure in which both sides lose. This interaction is a non-zero-sum game structured to lead to a less than optimal outcome.

The three pillars of the administered economy are output targets and allocations, administered pricing, and a cyclically repetitive control process. As long as these pillars remain, the attention of managers will be focused on pleasing (perhaps by deceiving) their superiors, not on catering to customers or bargaining with suppliers. The only way to get rid of these three pillars is to destroy the apparatus whose job it is to perform the functions they represent. This conclusion can be reached in a kind of deductive way, or it can simply be inferred from the experience and insights of the East European reformers.

The Soviet reformers have so far adopted a schizophrenic stance towards undermining the three pillars. They have talked about "combining plan and market," and they have tried to institute a hybrid system where some production activity was market-directed while the remaining production was to be guided by the old principles under the guise of goszakazy (state orders). They have legislated freedom for enterprises in the new Law on State Enterprises but have left in place the old bureaucratic apparatus to interfere with the exercise of that freedom. They have so far done virtually nothing to move away from administered prices. As time has passed and they have gained experience, however, the reformers have come to realize they must go further towards real marketization, and in their general policy and actions they have moved in the direction of radicalizing the reform. In short, the reformers have learned they cannot really change the behavior of the bureaucratic apparatus but must simply abolish it.³ They are held back in this task more by the political problem than by any lingering expectation that they can reform the bureaucrats. The tactics are to chip away at the administrative apparatus, to free individual sectors, to marketize certain categories of prices, and so on. Under such a piecemeal approach, there will be inconsistencies, but the experience of Eastern Europe suggests that it is probably impossible to proceed directly to a full-blown market system. What is important is to keep moving in the right direction.⁴

Price Reform

It is not possible to marketize without reforming the price mechanism. Marketization, properly understood, is a process in which markets not only allocate resources but also generate the information needed for the economic decision-making underlyingallocation. In shifting from vertical communication between bosses and executors to lateral negotiation between producers and users the goal is not to settle only decisions about quantities but also to get a reading from all interested parties on how much inputs and outputs are worth. What has to be reformed is not prices per se but the price mechanism. If economic reform is to improve economic performance, price reform must go beyond having Goskomtsen (State Committee on Prices) introduce "reformed prices" to removing the process from the hands of Goskomtsen altogether. This is one of the cases where it may be necessary to take one step first and then a second, but in this case such a transition is like the policy of protecting "infant" industry. As long as Goskomtsen is there to reform prices, it is itself the biggest obstacle to reforming the price mechanism.

Some of the reformers understand that administered prices must be eliminated. In a round-table discussion between Soviet reformers and Czech economists that was organized by the Soviet journal Kommunist and the Czech journal Nova mysl and that generated a clear-headed explication of reform, one of the Soviet participants, Nikolai Petrakov, made it plain on the question of market-based prices that despite what any price fixer may choose to do there is such a thing as the real value of any commodity and that only markets in equilibrium can reveal this value. "A price that equates supply and demand takes into account all factors on both the production side and the consumption side."⁵ In one of the sharpest criticisms of the official line on perestroika that has yet been made, Abalkin said something similar at the Party conference in the summer of 1987.

The big argument here is one of sequence. The official line is that before prices can be reformed markets must first be brought into equilibrium. There are too many shortages, and freeing prices would lead to disaster in the form of inflation and redistribution of income. Even the reformers are now accepting this line. The argument is less reasonable than it sounds, of course. The threat of inflation does not flow, as many current Soviet discussions would have it, from inadequate production but from too much money, which creates too much demand. An expansion of consumer-goods output would, ceteris paribus, expand the money in the hands of the population by the same amount as the supply of goods increased. V. V. Novozhilov explained this to Soviet policymakers long ago in the context of the shortage of goods in the 1920s, and it is interesting to see that someone has now mustered the good sense to reprint one of his articles on the subject.⁶ The prices that will create market equilibrium can only be found by letting them emerge via the market. Unfortunately, given the supply of money now in the hands of the population, a price level for consumer goods that would make the population willing to go on holding it would be far above the current level of prices. As Petrakov puts it in the discussion with the Czechs, "the problem of curing the monetary system is a life-or-death problem for economic methods of control The problem of reforming the price system must be solved simultaneously with the reforming of the monetary system."

The Soft or Hard Budget Constraint in Its Micro- and Macroforms

One of the standard problems of the Soviet-type economy is the absence of "a hard budget constraint." This term, first introduced by Janos Kornai, has acquired a wide variety of meanings, but basically it refers to the fact that Soviet-type economies, even in a semireformed version, lack institutional arrangements to force financial responsibility on the state and on i ts creatures—ministries of finance, banks, enterprises, and such. The crucial sanction that is missing is bankruptcy, which adherents of the socialist system have always been very reluctant to accept.

The softness of the budget constraint has micro- and macroeffects. On the microlevel, it reduces the pressu...

Table of contents

• Cover
• Half Title
• Title
• Copyright
• Contents
• Foreword
• Acknowledgments
• Introduction
• 1 How to Think about Perestroika
• 2 Redefining Socialism in the USSR
• 3 The NEP, Perestroika, and the Problem of Alternatives
• 4 Ownership Issues in Perestroika
• 5 Lessons from Eastern Europe
• 6 The Reemergence of Soviet Cooperatives
• 7 Is There a "Privatization" of Soviet Agriculture?
• 8 Perestroika and Innovation in Soviet Industry
• 9 Prospects for Commodity and Financial Exchanges
• 10 Retail Price Reform and the Soviet Consumer
• 11 Perestroika and Social Entitlements
• Contributors
• Index