U.S.-Soviet relations: a discussion of perestroika and economic reform. (James Baker address) (transcript)

U.S.-Soviet Relations: A Discussion of Perestroika and Economic Reform Since 1985, the Soviet Union has pursued an extraordinary effort at internal reform--an effort now known to the world through the words "perestroika" and "glasnost." Perestroika and glasnost are an inextricable mix of political, economic, and legal measures. As President Gorbachev has stated, overhauling the Soviet economy requires a transformation of the political and legal landscape--a true "revolution."

The need to establish the political and legal setting for reform explains Gorbachev's early emphasis on glasnost--freedom for people to speak openly about the shortcomings of the Soviet economy and society so as to build support for change. The need for political and legal changes has become, with time, an even more prominent feature of Gorbachev's reforms.

The changes Gorbachev has made in the political and legal structures have sought:

* A Politburo and Central Committee that would agree to radical reforms;

* A Supreme Soviet that would enact laws and decrees;

* A bureaucracy that would implement, not obstruct, reforms; and

* A general public that would embrace and sustain necessary changes.

Gorbachev and his allies have had to define and legitimize a new Soviet market system--frequently described as a "socialist market." This effort requires much more than a technically sound program. It necessitates an overhaul of the thinking and attitudes of millions of people. It requires changing a political culture with deep Russian, as well as Soviet, roots. Indeed it involves a reconsideration of Soviet doctrine in several sensitive areas. Other members of the leadership are bound to resist this assault on Marxist ideology.

For instance, perestroika requires a renegotiation of the Soviet "social contract." The Soviet people had received extraordinary security and distributive equality (except for the privileged and the corrupt, a growing group) but at the price of political dictatorship, the absence of civil liberties, few economic incentives, and limited economic opportunities. One dilemma of the traditional Soviet economy was summed up in the cynical phrase of Soviet workers: "They pretend to pay us, and we pretend to work."

Perestroika also forces new thinking about the tradeoff between efficiency and equality. This tradeoff, in turn, raises the question of the roles of property and incentives. In the absence of terror or an overriding social task (e.g., a war), economic incentive is the prime motivation for productivity, and private property is the key to economic incentive. The Soviets also need to rethink the role of the Communist Part and the state in running the economy. The information explosion of the last 20 years has demonstrated that a centrally planned economy cannot keep up.

It is sometimes hard for people used to living in market economy to understand the width of the gulf separating Soviet thinking on economic questions from our own. For instance, in the Soviet command economy, output and allocation are set through quantity targets according to a central plan, not by market prices. Instead of signaling scarcity, prices are used as an accounting tool. Rubles are not freely convertible into goods within the Soviet Union, much less outside. For example, a factory may have plenty of rubles but still be unable to buy raw materials because the plan directs the materials elsewhere. Or the factory may be allocated certain ruble credit but only for specified purchases. A high-level functionary may have access to a store with stocked shelves, whereas a citizen holding an equal number of rubles cannot find goods to buy. Money and markets do not command resources--central allocation decisions do.

In summary, it would be a mistake to analyze perestroika as simply an economic phenomenon. The course set by President Gorbachev involves changes in political structure, ideology, legal practices, and popular attitudes, as well as the economy. Much of it is experimental, designed to cope with problems of the moment. Frankly, it is a staggering task.

Lessons From Soviet Economic

Reform Failures

Perestroika is not the first effort to reform the Stanilist model of a command and control economy. In the 1950s, Khrushchev implemented the "new lands" policy in an effort to spark agricultural production. In the 1960s, Kosygin introduced the Lieberman reforms, a forerunner of current efforts to increase enterprise autonomy. In the 1970s, Brezhnev sought increased management efficiency by increasing cross-sector coordination, i.e., increased centralization and bureaucratization. All these efforts represented tinkering with the basic Stalinist model. All failed.

The causes of these failures to give us a better idea of what conditions may be necessary for perestroika to succeed. I believe these conditions include: (2)

1. Top-level political support;

2. Clear recognition of the need for economic changes;

3. An openness that permits the rethinking of ideology and economic theory so as to justify change;

4. A conducive international environment;

5. Consistency in the design and implementation of reforms; and

6. Ability to counter the power of the antireform bureaucracy.

Even these conditions may not totally suffice, for the reformers are taking on Russian as well as Soviet traditions. This society did not experience many important Western movements--neither the Reformation nor …