Transition Shock: Can the East Get There from Here?

Forman Craig , “Yugoslavia's Problems Show Risks in Reform of Socialist Systems,” Wall Street Journal, February 20, 1990, pp. Al and A20. “However, Yugoslavia also spent freely on ill-advised projects, without fully subjecting them to the rigors of the market-place. It never tackled the systemic problem of allowing bureaucrats with little understanding of free enterprise to make big decisions about allocating resources. Today, after having outrun other countries in its region by most economic yardsticks a decade ago, Yugoslavia is a winded laggard. Its output has fallen to a total of roughly 6% over eight consecutive years, economists say. Its labor productivity is down 20% and real personal income off 25%. Inflation has surged to 1,500%.

Cf. Bukovsky Vladimir , “In Russia, Is It 1905 Again?” Wall Street Journal, November 27, 1989, p. A12.

Vid's view that the Soviet Union is poised to launch a serious “regulated” market communist reform was shared by the other eleven distinguished members of his delegation. Confirmation is readily found in the current Soviet press and has been cited in the Western press. See for example, Gumbel Peter , “Soviet Reformers Urge Bold Push to Liberalize Faltering Economy,” Wall Street Journal, October 27, 1989, p. A13.

“K gumannomu, demokratichestomu sotsializmu (platforma TsK KPPS K XXVIII S'ezdu Partii),” Pravda, February 13, 1990, pp. 1–2. For excerpts of the Communist Party platform translated by TASS see “Party's Agenda: Liberty and Justice,” New York Times, February 19, 1990, p. A9. The text is ambivalent. On one hand, it calls for “the creation of a full-fledged market economy (which) requires the formation of markets of consumer products, capital goods, securities, currencies, and research and development, and an early reform of the financial, monetary and credit systems.” On the other hand, it stresses the need for an organic combination of plan and market methods to regulate economic activity.” See also Gumbel Peter , “Soviet Premier Offers Modest Economic Plans,” Wall Street Journal, December 14, 1989, p. A17.

Rumer Boris , “The ‘Abalkanization’ of Soviet Economic Reform,” Problems of Communism, Vol. XXXIX, No. 1, 1990, pp. 74–82.

The Soviet Union is a “command/incentive” system rather than a simple “command economy” because of the importance of decentralized enterprise decision making under existing arrangements. For a formal treatment of this issue see Rosefielde Steven Pfouts R.W. , “Economic Optimization and Technical Efficiency in Soviet Enterprises Jointly Regulated by Plans and Incentives,” European Economic Review, 3216, (1988): 1285–1299.

Cf. Goldman Marshall , “Gorbachev the Economist,” Foreign Affairs (forthcoming 1990). See Aganbegyan Abel , The Economic Challenge of Perestroika (Bloomington, IN: Indiana University Press, 1988); Aganbegyan Abel , Inside Perestroika: The Future of the Soviet Economy (New York, NY: Bessie/Harper and Row, 1989); Shmelev Nikolai Popov Vladimir , The Turning Point: Revitalizing the Soviet Economy (New York, NY: Doubleday, 1989).

“Ob arende i arendnykh otnosheniiakh v SSSR,” Ekonomicheskaia gazeta, 36 (September 1989): 17–18.

Isaev Aleksandr , “Reforma i oboronnye otrasli,” Kommunist, 3/1339 (Mart 1989): 24–30.

Although the Party platform of February 7, 1990 states that the C.P.S.U. believes the existence of individual property, including ownership of the means of production, does not contradict the modern stage in the country's economic development” the new draft law on private property presented by Deputy Prime Minister Leonid Abalkin to the parliament February 15, 1990 stops short of challenging a decade old taboo on private ownership. It substitutes the term individual property for private property which is defined to include home-ownership, personal goods, and even capital goods such as tractors. However, it still prohibits larger-scale private enterprise by forbidding “exploitation”—Soviet parlance for employing workers in a private enterprise. See “Party's Agenda: Liberty and Justice,” New York Times, February 14, 1990, p. A9 and “Soviet Property,” Wall Street Journal, February 16, 1990, p. A10. On Wednesday March 6, 1990, the Parliament voted to permit “citizens' property” for small scale business activities. The plural possessive and the continuing ban on private property implies that ownership must be in some sense cooperative. The real effect of this legislation remains in doubt. See Keller Bill , “Soviets Approve the Right to Own Small Businesses,” New York Times, March 7, 1990, pp. 1 and A7.

“O vnesenii izmenenii i dopolnenii v zakon SSR ‘O gosudarstvennom predpriiatii (ob'edinenii)’,” Izvestiia, August 11, 1989, p. A13. For fuller discussion of the concepts of self-directed and goal-directed behavior see Rosefielde Steven , “Soviet Market Socialism: An Evolutionary Perspective,” Research on the Soviet Union and Eastern Europe, (Spring 1989) and Rosefielde , “State Directed Market Socialism: The Enigma of Gorbachev's Radical Industrial Reform,” Soviet Union/Union Sovietique (forthcoming 1990).

Gumbel Peter , “Soviet Reformers Urge Bold Push to Liberalize Faltering Economy,” Wall Street Journal, October 27, 1989, p. A13. “All-Union Scientific-Practical Conference on Problems of Radical Economic Reform (Organizing Committee) “Radical Economic Reform: Top Priority and Long Term Measures” Ekonomicheskaia gezeta, 3 (October 1989): 4–7; Hewett Ed , “Perestroika—‘Plus’: The Abalkin Reforms,” Plan Econ. Report, Vol. V, Nos 48–49, December 1, 1989. Cf. Keller Bill , “Gorbachev Says It's Not Time For Private Property,” New York Times, November 17, 1989, p. 8.

See Council of Ministers decree No. 203, March 6, 1989 (On Measures for Government Regulation of Foreign Economic Activity).

Perlamutrov Vilen , “Zhit' po sredstvam,” Nedelia, 35/1483, (1988):7–8.

On October 31, 1989, the Soviet legislature approved a 1990 budget that halved the deficit. Income for 1990 is projected to be 429.9 billion rubles and expenditures 489.9 billion rubles. The reduction includes a cut in defense expenditures from 77.3 to 70.9 billion rubles, but these figures should not be taken at face value. See “Soviet Vote 1990 Budget, Slashing Its Deficit by Half,” Wall Street Journal, November 1, 1989, p. 2. Academician Oleg Bogomolov, USSR People's Deputy and the Director of the Institute of Economics of the World Socialist System asserted at the American Enterprise Institute Conference (on “Comparing the Soviet and American Economies” Airlie House, April 21, 1990) that Soviet defense spending could be nearly treble the official figure, in the vicinity of 200 billion rubles.

AEI, Conference on Comparing the Soviet and American Economies.”

Keller Bill , “Short of Cash, Kremlin Weighs a Soviet Version of the Sin Tax,” New York Times, October 31, 1989, p. 1, 7; Gumbel Peter , “Soviet Economists Charting New Reform Face Grim Opinion About Change So Far,” Wall Street Journal, November 14, 1989, p. A19. Aganbegyan's proposal however has resurfaced in the Communist Party platform of February 7, 1990.

Central Intelligence Agency and Defense Intelligence Agency, “The Soviet Economy Stumbles Badly in 1989,” Testimony to the Joint Economic Committee of Congress, April 20, 1990, p. 12.

“Soviet Unemployment,” Wall Street Journal, November 1, 1989, p. A10. Gumbel Peter , “Soviet Reformers Urge Bold Push to Liberalize Faltering Economy,” Wall Street Journal, November 27, 1989, p. A13. “… the new system would lead to big differences in pay between workers and almost certainly to unemployment. To cushion the blows, the government would introduce a minimum wage and unemployment benefits.”

Lange Oskar , “On the Economic Theory of Socialism,” Review of Economic Studies, 4/1 and 2 (October 1936 and February 1937), reprinted in On the Economic Theory of Socialism (New York, NY: McGraw-Hill, 1964), pp. 57–143.

CIA and DIA, “The Soviet Economy Stumbles Badly in 1989.”

Decree of the USSR Council of Ministers, “On the Further Development of the External Economic Activity of the State, Cooperative, and Other Public Enterprises, Associations and Organizations,” December 2, 1988.

“Soviet Unemployment,” Wall Street Journal, November 1, 1989, p. A10. These statistics are reported in Pravda.

Winiecki Jan , The Distorted World of Soviet Type Economies (Pittsburgh, PA: University of Pittsburgh Press, 1988); Aslund Anders , Gorbachev's Struggle for Economic Reform (Ithaca, NY: Cornell University Press, 1989).

This is the approach favored by Poland's Finance Minister Leszek Balcerowicz, who understands its risks, but is still prepared to persevere. See “Polish Economic Plan is Bold Capitalistic,” Wall Street Journal, December 4, 1989, p. 1. According to Bogomolov, Abalkin proposed “Polish Shock Therapy” for the USSR in mid-April 1990, but the proposal was rejected by the Congress of People's Deputies. AEI conference on “Comparing the Soviet and American Economies.”

The concept of fundamental disequilibrium is elaborated in Rosefielde Steven , “The Soviet Economy in Crisis: Birman's Cumulative Disequilibrium Hypothesis,” Soviet Studies, 40/1 (April 1988): 222–244.

Any economic merger is almost certain to involve enormous subsidies to the East Germans which many fear will be paid in part by inflationary currency emission. The West Germans could be compensated by acquiring denationalized property in the East on favorable terms, but this is a politically explosive issue that has not yet been seriously addressed.

CIA and DIA, “The Soviet Economy Stumbles Badly in 1989,” pp. 13–16.