BUSINESS WATCH

The looming threat to Gorbachev’s power

The Soviet Union lacks the competitive spirit and risk-taking aptitude required to modernize a beached, state-run economy

Peter C. Newman January 8 1990
BUSINESS WATCH

The looming threat to Gorbachev’s power

The Soviet Union lacks the competitive spirit and risk-taking aptitude required to modernize a beached, state-run economy

Peter C. Newman January 8 1990

At the invigorating launch of a new year and of a new decade, the shape of our future hangs on the uncertain fate of Mikhail Gorbachev, the capricious reformer who caught history on the move and has turned most of our international assumptions upside down.

During the next 12 months, his clout and his intentions will be severely tested as economic realities catch up with political initiatives. This will be most dramatically apparent as the Soviet Union’s onetime satellites rush towards democracy. Czechoslovakia, East Germany, Hungary, Poland, Bulgaria and Romania face horrendous problems trying to revive longdormant free-enterprise traditions while having to modernize obsolete production and distribution facilities, as well as paying down longstanding national debts.

Ironically, the freely held elections each of these countries will hold to confirm their newly gained democratic status will seriously delay and hamper required economic reforms. Fledgling political parties led by utopian-minded politicians testing the unfamiliar limits of participation and accountability will understandably hesitate to impose the kind of tough economic disciplines required to salvage their Rip Van Winkle societies. Until those elections are held and each country has a freely elected government in place (Poland is ahead of the pack), few structural problems will be resolved.

That will mean a tough transition period and dramatic appeals to the International Monetary Fund (IMF) for credit injections and aid programs. Studies are now under way to determine the feasibility of establishing a European equivalent of the Inter-American Development Bank, through which the Washington-based IMF funnels most of its aid funds into Latin America. The pattern of assistance would probably resemble the 1948-1952 Marshall Plan, which rehabilitated the economies of postwar Europe with more than $13 billion of assistance, providing the jump-starts that boosted their gross national products by 25 per cent or more.

But unlike that massive transfer of funds and technology which was financed and directed by U.S. government agencies, this time it will be more of a European Community effort with much of the direction and money coming from the private sector, though some form of government or IMF guarantees may also be involved.

Those Eastern European economies will be difficult enough to modernize, but the really herculean task will be the transformation of Mother Russia. Having moved directly from feudalism to communism 70 years ago, the Soviet Union is innocent of the capitalist ethic, with its citizens not bound to the notion that a hard day’s work well done is a worthwhile human activity. There is little individual competitive spirit and none of the aptitude for risktaking required to modernize a beached, staterun economy. Generations of Soviet citizens stolidly standing in line for shoddy consumer goods have left a legacy that rims directly counter to the capitalist ideal that rewards the most capable and the most industrious.

The most immediate problem is that, even when some Russian entrepreneurs do succeed (such as owners of restaurants catering to foreign journalists), there is literally nothing they can buy with their extra rubles. This is due not to runaway inflation but to the acute shortage of consumer goods at all levels. Because the ruble has lost its purchasing appeal, it will be difficult for Gorbachev to rally his people behind a market economy. Value of the currency has deteriorated to such a degree that it’s no longer treasured as a way of saving for the future. Partly because its currency has ceased to be a binding force, the Soviet federation, which is a conglomeration of 15 warring republics and more than 100 ethnic groups loyal to domestic brands of nationalism rather than a common centre, is bound to implode.

The heaviest pressure on Gorbachev will come not from the political right, but from the left, which wants more reforms, faster. The move by radical deputies at last month’s congress to strip the Communist party of its constitutionally enshrined monopoly, supported by a 42-per-cent vote, was the first step in the process. “Most Soviet people don’t believe that the Communist party can save the country,” the Soviet Union’s world chess champion Garri Kasparov recently told a British interviewer. “They hear talk of freedom and reform, but they see no food in the shops. The key question for me is this: Is Gorbachev trying to reform society, or is he just trying to reform the system? I think it’s the system and that won’t be enough, because the system itself is the problem.”

In his quest for change, Gorbachev faces some serious psychological obstacles. Ever since the 1917 revolution, the behavior of citizens has been either prescribed or forbidden; future developments were thought to be either inevitable or impossible. That kind of fatalism has produced a rigid code of conduct that is now very difficult to break. The Russian instinct has always been for security, not opportunity. The average Soviet citizen feels very little anarchy in his bones, preferring to organize life around sanctioned modes of behavior.

Rigid central planning and an apparent inability to master the modem techniques of distribution have left the Soviet economy performing far below its potential. Agriculture has been particularly hard hit by the inability—and unwillingness—of farmers to make the collective system work. (According to a Ukrainian joke, the best way to get rid of fleas is to collectivize them: that way half will die of hunger and the rest will run away.)

Ultimately, the outcome of Mikhail Gorbachev’s magnificent gamble will depend to a large degree on how positively and constructively Western democracies react and reach out to help. At the moment, there is more confusion than sympathy. “Every night for 40 years we walked into the bedroom, opened the closet and looked under the bed to see if we could find a Communist,” Florida Democratic Congressman Dante Fascell said recently. “And one day we walked in, and he was in our bed smiling. It’s very confusing.”

Meanwhile, the world is being reinvented as we walk in it.