SPECIAL REPORT

THE SOVIET PARADOX

GORBACHEV RETURNS TO A CRUMBLING ECONOMY

MALCOLM GRAY July 29 1991
SPECIAL REPORT

THE SOVIET PARADOX

GORBACHEV RETURNS TO A CRUMBLING ECONOMY

MALCOLM GRAY July 29 1991

THE SOVIET PARADOX

SPECIAL REPORT

GORBACHEV RETURNS TO A CRUMBLING ECONOMY

In the fierce heat of the short Siberian summer, cars, trucks and buses crowded the dusty, tree-lined streets of central Tyumen last week. That the traffic jam took place amidst an acute gasoline shortage graphically illustrated the peculiar workings of the country’s crumbling, centrally planned economy. So many local drivers have the blat (influence) or initiative to locate scarce supplies that they routinely clog the streets of Siberia’s oldest Russian city. Even more peculiar is that Tyumen, a city of about 500,000 located 1,850 km northeast of Moscow in the centre of the Soviet Union’s most productive oiland-gas fields, should have a gasoline shortage at all. The reason for the shortfall: despite the city’s location as the administrative centre of the Soviet Union’s most oil-rich region, the state ships Tyumen its official allotments of gasoline and other oil products from Omsk, 500 Ion to the southeast, and from other distant refineries. Said Boris Binkin, an economist employed by the regional government: “Such things are hard to explain. Only our country could be so rich and so poor at the same time.”

It was that paradox that Soviet President Mikhail Gorbachev faced last week after meeting in London with leaders of the world’s seven á largest industrialized nations, jc.

He returned to Moscow 1 armed with the G-7’s six? point plan, which included a special relationship with the International Monetary Fund and technical assistance from summit members. But Gorbachev did not ask for, or receive, the $15 billion in aid that Soviet officials, before the summit, had said that they sorely needed. And Gorbachev’s domestic critics charged that he had secured only meagre weapons with which to combat his country’s daunting economic problems. Pravda, the Communist party newspaper, cited figures for the first half of 1991 showing a 10-per-cent decline in the Soviet gross national product and a drop of 6.2 per cent in industrial productivity. Pravda also forecast a meagre harvest of this year’s

drought-stricken grain crop. “Where,” the newspaper asked, “is the ladder out of the hole?” Added Yuri Blokhin, leader of the rightwing Soyuz group in the Soviet parliament: “Our hopes that the West would invest in our economy were not fulfilled.”

Vanish: In Tyumen, many residents said that only direct foreign investment coupled with greater local autonomy would ensure a more prosperous future. Added economist Binkin: “It is not just the residents of Tyumen who are

dissatisfied. I would say that most Soviet citizens are ready for widespread economic reforms.” But in Moscow, Ruslan Khasbulatov, acting chairman of the Russian legislature, maintained that a massive infusion of Western aid before the Soviet Union establishes the foundations of a free market would vanish like water poured into sand. He added: “Everything would disappear without a trace. In the past 17 years, we received about $230 billion from sales of oil and gas. Where are they? Just try to find them.”

That question is tiresomely familiar to many of the 21 million Siberians who inhabit a harsh

land of fabulous resources that is more than half the size of the North American continent. Tyumen is at the hub of western Siberia’s energy industry, but it does not have the sleek appearance of oil-generated wealth. Instead, it is a place of run-down buildings and chronic shortages where, for the past year, oil-and-gas workers have been threatening to strike for better living conditions. Local government and union leaders say that Moscow treats Siberia like a colony, demanding ever-higher produc-

tion and providing few benefits in return.

Certainly, similar sentiments are now evident across the country as the Soviet Union is readying itself to switch to a market economy, trying to establish a pluralist democracy and facing the dissolution of the world’s last colonial empire—all at the same time. Those concerns are reflected in several countrywide polls: a recent survey by the Moscow-based National Institute for Sociological Studies revealed apprehension about rising crime rates, worry about the increased likelihood of unemployment and a dwindling faith in the Kremlin leadership. Still, despite chronic shortages of

consumer goods, a flourishing black market, growing inflation and corruption that extends from traffic police to government ministers, the Soviet Union continues to function—after a fashion.

Workers show up for their jobs, near-empty state stores remain in operation and planes, trains and buses keep approximately to schedule.

Blood: For many Sibiryaki (Siberians), the troubled transition from a centrally planned economy to a free market has created opportunities as dramatic as any in the northland’s colorful and bloodstained history. Since Cossack bands in search of furs, land and treasure first extended the czar’s authority eastward in the late 16th century, Siberia has attracted adventurers. It has also served as a jail for millions of the czar’s exiles and political prisoners. Soviet authorities continued that practice until Gorbachev closed the notorious forced-labor camps for political prisoners shortly after he took office in 1985. Tyumen, where czarist-era exiles once waited in grim, overcrowded forwarding prisons until iron barges arrived to carry them farther east along the Tura River, no longer serves as a holding pen. But modern-day adventurers are still there. They are the men and women who moved northward during the past 40 years to develop some of the world’s largest supplies of oil, gas, coal and hydroelectric power. In re-

turn, they usually earned wages at least three times higher than the Soviet average of $665 per month at the artificially inflated official rate of exchange, but equivalent to only about $15 in hard currency. But the wage gap has narrowed in recent years.

Meanwhile, wasteful and outmoded extrac-

tion technology and shoddily built and maintained pipelines have led to temporarily closed oilfields, layoffs and falling wages among energy workers. That in turn has led to a steady decline in the Soviet Union’s primary source of hard-currency exports: in 1990, oil production fell to 570 million tons, a six-percent drop from 1989. In the Tyumen region alone, oil production fell 30 million tons short of target last year, and the region’s 700,000 energy workers have threatened to strike in order to protest the drop in their standard of living. Among their complaints: shortages of food and consumer goods, and broken government promises to build more apartments, schools and hospitals.

Force: At the heart of the energy workers’ dissatisfaction is the fact that Moscow bureaucrats force Siberian oil-and-gas officials to sell the bulk of their production at artificially low, state-con| trolled prices. At a time when & Soviet oil was selling on the ^ world market for hard currency, Tyumen-region enterprises earned the equivalent of only 85 cents per ton—an amount that Pravda noted was less per litre than the retail price of bottled mineral water. An oil workers strike would further devastate the staggering national economy, which was hurt by a twomonth coal workers strike earlier this year. As a result, the Kremlin has granted energy work-

ITIS UNCLEAR WHETHER GORBACHEV CAN SURVIVE THE CURRENT HARDSHIPS

ers the right to sell privately 10 per cent of what they produce each year. Now, the workers and local authorities can use the money earned through the sale of that oil to obtain desperately needed consumer goods.

One of the effects of that first halting step towards greater local control over regional resources was on display last week at Tyumen’s Palace of Culture, the city’s community centre. There, in a building that usually is a home for plays and concerts, hundreds of brokers crowded the auditorium to bid for oil. Those brokers, members of the newly formed Tyumen Commodities Exchange, represented towns, regions and enterprises across the country that were prepared to pay a domestic price equivalent to about $19 per ton to secure guaranteed supplies directly from the oil workers. The next planned step for the exchange: selling directly to foreign customers. Said exchange president Sergei Denisov: “We have had inquiries from Yugoslavia, Bulgaria and Hungary, where buyers told us that the [hardcurrency] asking price of $120 per ton was too expensive. But I think that is reasonable and that foreign customers will buy at that level.”

In a room near the auditorium, Denisov described the workings of the commodities exchange. Above him, a sepia-toned portrait of Vladimir Lenin seemed to glare into a dwindling socialist future as Denisov explained that some of the exchange’s 750 brokers had paid as

much as $50,000 for a seat on the trading floor—a threefold price increase since May. Many of those brokers represent large enterprises. But some of the traders are private individuals who plan to recoup the price of an exchange seat through the five-per-cent commission that they receive on each deal.

Bitter: Denisov, a massive, 46-year-old man in a grey pin-striped suit, embodies some of the contradictions of the changing Soviet society. After bitterly dismissing the Kremlin’s operation of the oil-and-gas fields as nothing more than decades of mismanagement and colonial exploitation, he eloquently outlined the need for a market economy, local autonomy and large-scale foreign investment to raise declining oil production. Said Denisov: “We cannot depend on the government. We have to rely on ourselves to get those things.” But in a paradox that he could not explain, the president of an institution that condones personal profit making acknowledged that he is still a Communist—indeed, he is first deputy chairman of the regional party executive.

At the commodities market, at least, profit taking by brokers is openly acknowledged. But across the Soviet Union, opinion polls repeatedly confirm the widespread belief that 74 years of communism have fostered corruption and illegal financial activities. Komsomolskaya Pravda, the frequently irreverent newspaper of the party’s youth wing, focused on that fact

of Soviet life in a recent article. Declared the paper: “The Soviet economy is an enormous black market. Everything is in short supply. However, you can get everything if you turn to people who can be bought.” The newspaper cited the case of Vakhaba Usmanov, a former official who was sentenced to death for corruption in 1984. Usmanov had bribed Moscow bureaucrats, the newspaper noted, not for personal gain, but in order to win reductions in state production quotas for cotton. Added Komsomolskaya Pravdcr. “It was not his being immoral, but the very system, that prompted this pattern of behavior.”

Bribes: In any event, government statistics show that corruption has become even more widespread since Gorbachev came to power six years ago. According to Soviet estimates, favor seekers paid government officials more than $50 million in bribes last year. In a society where a well-timed payoff, ranging from cigarettes to large-scale kickbacks, will instantly produce previously s unavailable goods and ser§ vices, Soviet officials esti| mate that such illegal eam~ ings reached almost $3 billion last year—a $500-million - rise from 1989. Asked how

he could operate during a gasoline shortage, a Tyumen taxi driver broke into laughter before quoting an old Russian proverb: “It is better to have 100 friends than 100 rubles.” And he added: “With the right kind of friends, everything is available for a price.”

Other Soviets have looked into the future and have predicted only hardship. That pessimistic outlook is reflected in a Moscow poll that found that almost 50 per cent of Soviet citizens said they believed their families would suffer financially in the switch to a market economy. Said Luba Tamarov, a 42year-old technician at a Tyumen research institute: “My daughter is in her third year at university, and I keep telling her to stay in school as long as she can because it will be hard for her to find a job.” After decades devoted to following the socialist route to a better life, Tamarov and millions of other Soviets are now being told—by their own leaders as well as by cautious foreign investors—that their society has spent 74 years on a road to nowhere.

But as the Soviet Union readies itself to transfer much of its state-owned economy into private hands, one familiar refrain is missing. Unlike the wildly over-ambitious five-year plans of the past, the new policies deliberately offer no empty promises of an early end to the current hardships.

MALCOLM GRAY in Tyumen