Inside the Collapsing Soviet Economy


Mikhail Gorbachev and his country's struggling reforms produce a deeply ambivalent reaction. The Soviet leader's policy of glasnost, his willingness to seek an end to the Cold War, his ability to set free more than 120 million Eastern Europeans— all exceeded our wildest hopes for the end of the twentieth century. When Time early this year named Gorbachev "Man of the Decade," it was no more than a dramatic reflection of popular American sentiment. In a recent Harris survey Americans gave the Soviet leader a higher approval rating than George Bush.

But with the fall of the Berlin Wall and the collapse of communism in Eastern Europe, our euphoria has been replaced by much darker expectations about the Soviets' own future. To most Americans the continuing outbreaks of ethnic conflict, the secessionist movements in the Baltics, the turmoil of Soviet politics, and, most important, the apparently intractable problems of the gigantic Soviet economy add up to an impossible situation, too large for control, and doomed to a fateful outcome.

Within days of Time's "Man of the Decade" issue the journal Daedalus opened the nineties with a much more ominous assessment of the future of the Soviet leader and his nation, by the anonymous "Z." The author foresaw only collapse and chaos for the Soviet Union, and failures for Gorbachev. Weeks later, in The Washington Post, a highly regarded Sovietologist even named the military figures he thought might soon replace the Soviet leader. When CNN reported in January that Gorbachev was about to resign, the Tokyo stock market fell, and Secretary of State James Baker waited twenty-four hours before denying the rumor outright.

Among America's European allies there is a growing sense of puzzlement at our mood swings and especially our gloom. I talked not long ago with one of West Germany's top bankers, a man who travels frequently in the Soviet Union and Eastern Europe. "You Americans seem overwrought about Gorbachev," he told me. "He is stronger now than he has ever been politically. The ethnic minorities are a problem, yes— but taken together, the Baltics and Central Asians are no more than five percent of his population, and you seem to forget he still has a four-million-man army. The economy is his problem, and the bureaucratic resistance to change— but he doesn't need you to tell him that." Prime Minister Margaret Thatcher takes an even more optimistic view: back from a recent visit to the USSR, she told reporters, "I believe perestroika is now set on its course— and will go through to success."

Some of America's top experts on the Soviet economy seem just as perplexed by our popular sense of an imminent collapse— especially when it centers on the Soviet economy. Vladimir Treml, a professor of Soviet economics at Duke University, says simply, "Economies this size don't collapse." John Hardt, the Congressional Research Service's top Soviet analyst, likewise sees neither imminent collapse nor any immediate threat to Gorbachev's political future.

Jerry Hough, a Brookings Institution political scientist, whose judgments about Gorbachev are highly regarded, is blunt: despite its current problems, he expects the Soviet economy to begin showing significant improvement within the next two to three years, and he says that when he raised the issue of Gorbachev's possible downfall with a broad range of Soviet citizens on a recent trip, "they looked at me with a blank stare." Hough says that "no one I talked to has the sense of an imminent popular uprising" or of widespread collapse.

But can Gorbachev in fact survive? And can his economic reforms work?

An Evening's Meal

I HAD DINNER AT THE HOME OF A SOVIET FRIEND IN Moscow not long ago. Set in a ten-year-old high-rise complex south of the Lenin Hills, my friend's small apartment is nicer than many but not at all distinctive by Moscow standards. What surprised me was the sumptuousness of the meal I was served. Delicious hors d'oeuvres of pickled vegetables, served with Georgian wine, were followed by roast duck with fig potatoes, and beets, accompanied by Moldavian champagne, and by a dessert of cream cakes and chocolates. The meal ended with Armenian brandy.

Obviously, it wasn't in any sense a typical Russian evening meal. I was a foreign guest, my hosts (he a psychologist, she a high school teacher) were upper middle class; but even so, the variety and richness surprised me, given all the complaints both the Western and the Soviet press record about food shortages and growing consumer discontent. Like everyone else in Moscow, I had watched the long lines gather each evening outside stores, and had seen just how poorly the shelves of those stores were stocked— even compared with a few months earlier. I asked my hostess how she had managed what seemed to be culinary magic.

The pickled vegetables had come from her garden, and she had canned them herself. (The garden was attached to their dacha— a small one-room wooden cabin located just east of the Moscow Ring Road.) The duck was from a private market down the street— very expensive at thirty-five rubles (three days' wages for the average Soviet citizen), but, as my hostess said, "Of money there is no shortage right now." The cakes were from a neighbor, a retired woman who liked to bake and then sell her wares to others in the building, for a few rubles each. The champagne had been brought back from a summer vacation; the figs came from a "relation" in Georgia. The wine and chocolates had been bartered for theater tickets my friends couldn't use. Only the potatoes, beets, and brandy had been bought in public stores.

"You know," my friend said when his wife finished, "we Russians have a saying: To, schro ne videsh v magazinakh, videsh na stok. What you don't find in the store, you find in the home."

Soviet living standards have been declining for the past two years, as scarcity and suppressed inflation have surged through the economy. But for more than seventy years the Soviet people have survived— and in many cases prospered— by trading on the wisdom summed up in my friend's aphorism. Anyone who has spent more than a few days in the Soviet Union knows what a complex strategy its citizens have developed to maintain and improve their lives amid perpetual shortage. But the sheer dimensions of the world in which they pursue this strategy— and its role in daily life— are hard for most Americans to grasp.

The largest part lies in a vast gray area that Western economists sometimes genteelly call the Soviets' "second economy." Blat, tolkachi, shabashniki, fartsovshiki, are terms the Soviets use to describe elements of the world that lies beyond the view of Moscow's statisticians. Roughly translated, they cover aspects of life that range from a generous tip for securing hard-to-find merchandise to the black-market realm of the Soviet Mafia. All economies include such netherworlds, but according to estimates by Gosplan, the Soviet central-planning ministry, this one may account for some $150 billion a year, which is equivalent to about 11 percent of the Soviet gross domestic product.

The Soviet economist Nikolai Shmelev cites survey research showing that 83 percent of the population buys goods and services in this vast second economy. In cities almost half the apartment repairs, 40 percent of auto maintenance, a third of appliance repair, and 40 percent of all tailoring and shoe repair happen beyond the gaze of Soviet statisticians. Owing to waiting lists at Soviet hospitals, anywhere from 4 million to 8 million of the abortions performed annually are done illegally, and 15 percent of all new housing construction— some 170 million to 180 million square feet a year— goes on outside official channels.

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