A history of Russia

than a decade ago, serious Western observers could still seriously consider whether the global economic competition would eventually be 'won' by the East, with all that implied for the world's future. Today, equally serious people equally seriously advocate Marshall-like assistance from the West in the hundreds of billions of dollars lest the Soviet economy (and polity and society) fall even deeper into destitution and disorder, with all that would imply for the world's future.

Although the present economic condition is indeed catastrophic, it has not been quite as unexpected as one might have assumed from appearances alone. In fact, the underlying forces of rot and ruin have been at work for decades, albeit concealed by the secretiveness of the dictatorial regime and the silence of an intimidated population (but for a relatively few dissidents). Among such long-term, corrosive trends one might mention the huge diversion of national resources to military and imperial ends; heedlessly wasteful depletion of natural and human reserves for economic growth and progress, combined with lags in civilian technological advance and improvement in quality; inability to feed the population without massive imports; enormous physical degradation and contamination of the environment with major effects on human health; growing sclerosis of the centralized system of economic planning and governance, aggravated by rigid price-wage controls and monetary mismanagement; steady growth of a large underground economy intimately linked with widespread official corruption and (with time) major organized crime; deterioration of work incentives and work morale, not to say initiative, enterprise (except in the underground), and sense of responsibility. And consequent steady retardation of economic growth, and actual decline.

One could extend this dismal list of the underlying economic factors (not to mention the political, social, and ethnic ones) that have been propelling the Soviet economy for decades towards its historic moment of deep crisis. That moment arrived under Gorbachev, not because Gorbachev is the most skilled economic reformer the USSR could have sooner or later produced - very likely he is not - but because it is difficult to imagine another communist leader, and it would have to be one, who could have more quickly and thoroughly discredited the shams of the past.

But Gorbachev has not yet destroyed, if indeed he intends to fully destroy, either the old ways of running the economy or the social groups that have tra-

*Slightly abridged statement of Gregory Grossman (Berkeley) submitted at the Joint Hearing of the Subcommittee on Europe and the Middle East of the Committee on Foreign Affairs of the U.S. House of Representatives and of the Joint Economic Committee of the U.S. Congress.

ditionally run it, namely, the Party apparat (himself being its titular head) and the state's nomenklatura, or the idea of socialism itself. Which is one reason why the economy is currently in such deep trouble.

But first we should note the economic agenda that has informed and inflamed Soviet politics since Gorbachev took over in March 1985. (A) The first urgent problem that Gorbachev addressed was reducing the military- economic-technological gap vis-a-vis the West. He attacked it in the traditional Stalinist way with the same institutions and the same people… and failed, wasting resources and 1-2 years' time in the process. (B) Then he turned to the idea that apparently had been germinating in his mind for some time, namely, the boldest institutional reform yet, perestroika (as well as its concomitant, glasnost) to attract the educated to his side to help him discredit the past.

Economic reform (later, in its more radical, system-transforming, privatizing form usually termed 'transition') imposed an agenda of economic measures which - not at once but with time, and not always in the same order of urgency - came to consist of the following main components. (1) At this point most urgently, stopping the rapid downward slide of the 'real' economy. (2) Stabilization: moving to a condition in which - in starkest contrast to the current situation - domestic money is a functioning common denominator of value and an effective medium of exchange, and prices (and foreign exchange rates and interest rates) are market-clearing, reasonably stable, and sustainable.

By 1990-91 stabilization became the foremost issue, overshadowing all the others on the agenda. (3) Marketization of the command economy, a task of no mean order. (4) Legalization of the widest range of private business activity, plus privatization of hitherto state-owned businesses. (5) Resolving the explosive issue of new formulas for union (federal) to republic relations, inter-republic relations, secession or extreme autonomy of some of the republics (now usually calling themselves sovereign states), etc. (6) Integration of the USSR (or what is left of it) and of its individual constituent parts into the world economy. (7) A social safety net adequate to the economic dislocations and the political upheavals that can be fairly expected. (8) Fiscal and banking structures corresponding to the solutions taken under (l)-(7). And of course drafting and enacting a vast amount of legislation. A more daunting agenda would be hard to imagine even for a country not riven by nearly every kind of strife and feud as is the USSR.

Now, in mid-1991, important developments are moving at once on several planes and in contradictory ways. First and foremost, the economy's downward slide has accelerated markedly. Above, I used the word 'catastrophic' in this regard; it is not overdrawn. For the first four months of this year GNP fell by over 9 percent in relation to the corresponding period the year before (but see the remarks regarding Soviet statistics immediately below). The record for the whole year may well be substantially worse, as is generally believed likely by well-informed Soviet economists with whom I met in Moscow and in the West during the past 30 days. Hence, I find myself in broad agreement with the 'grim' conclusions in the paper entitled 'Beyond Perestroyka: The Soviet

Economy in Crisis' (16 May 1991, presented by the CIA and the DIA to the Joint Economic Committee of the U.S. Congress). To wit:

There is no doubt that 1991 will be a worse year for the Soviet economy than 1990, and it is likely to be radically worse… [If the standoff between the center and the republics continues], real gross national product likely would decline 10 to 15 percent and the annual inflation rate could easily exceed 100 percent. (p. iv)

The last may have already happened, largely by virtue of the sharp and mostly administrative increases in official retail prices on 2 April 1991. (It seems that the producers and ministries 'ran away' with the prices and raised them significantly above permitted levels.) The monetary 'compensation' for the April retial price increase that is being paid to the public, differentiated by social groups, offsets perhaps about half of the actual price rise. Further price increases can be expected before the end of this year.

In the event that the standoff between the center and the republics moderates, the results for 1991 could be less 'grim' - but hardly very much less.

This said, in truth it is extremely difficult to establish with any numerical exactness just what is currently happening in the Soviet economy. Although, under its current leadership, the official statistical establishment is trying to improve the quality and comparability of its data, as well as increase the volume of statistical publication, its efforts are thwarted by the fractious realities of the moment. Great ranges of multiple prices for individual goods in a given place and time; physical shortages of goods; wide use of barter (for lack of faith in money); corruption, ubiquitous black markets, evasion of taxes and of administrative regulations; the fragmentation of the country into scores if not hundreds of what amounts to semi-independent principalities (due to erosion of central control), each with its own rationing norms, administrative rules, trade barriers, price controls, etc. - combine to make the statistician's lot not a happy one in the USSR. And yet, the broad trends in production and consumption are probably what we think they are; in other words, close to catastrophic.

No less important is the picture in regard to the distribution of personal income and wealth. Here, our data are even more opaque; yet it is difficult to escape the impression that 1991 has hit a new high (or low) in terms of the differentiation of personal income and wealth. The losers are that large portion of the population whose livelihood depends chiefly on official sources of income (wages, salaries, pensions, etc.), which have generally fallen in real terms this year; and/or whose informal incomes have risen less than inflation; and/or those with few lucrative personal connections. But many others have gained considerably riding the crest of the many new opportunities both for profitable production and commerce and for quick arbitrage and black-market dealing - by dint of growing shortages and soaring prices, substantial liberalization of private business activity in various new legal forms, and the chaos itself.

Thanks to such rising private opportunities in the midst of general confusion and chaos in the economy, the Soviet Union may today present some of the

best prospects for quick personal enrichment. Nor need one keep one's wealth in rubles; there are innumerable ways of various degrees of legality or illegality for transferring private money abroad.