It was a dangerous beginning for what many economists considered a heroic half measure at best. Ryzhkov and his advisers had pressed the price increases as a part of what they described as a plan to move the Soviet Union toward a “regulated market economy.” The program would be painful, they freely admitted; retail prices would rise 43 percent, forcing employers to tighten their belts at the cost of millions of jobs. The measures, they said, were a crucial first step toward bringing supplies in line with overheated demand. But frightened by their own audacity, Soviet planners also called for a nationwide referendum on the plan. It would be the first such vote in Soviet history, a sign of the government’s weakness in the face of rising economic discontent. “Certainly, a transition as steep as this one is impossible without a national accord,” said Yuri Maslyukov, director of the state planning agency. “If the government’s concept is not accepted,” he added, “then the [Ryzhkov] government should resign.”
The likelihood of rejection seemed large. Insisting that the program did not go far enough, parliamentary deputies from the left-wing Inter-Regional Group called for a vote of no confidence in the government. Even greater opposition was expected from the right. Leonid Abalkin, chairman of Mikhail Gorbachev’s Economic Reform Commission, should have been warned by protesters at the recent May Day parade. ABALKIN–HANDS OFF THE WORKING MAN’S POCKETS, read a typical sign. “It was always quite clear to me that there would be a struggle,” said Abalkin. “But this burst of cruelty I did not foresee.”
Yet for all the hardship it would entail, the government’s program is notably mild. Soviet leaders explicitly rejected the kind of “shock therapy” that immediately freed prices in Poland last January (chart). Such an approach, Maslyukov estimated, could leave 40 million Soviets unemployed. “We are unable to offer normal living conditions to such a number if they lose their jobs,” he said. “It would lead the country to the edge of an economic crash.” Instead, government economists predicted, the latest plan–which envisions only a gradual decline in the Kremlin’s involvement in the economy–would raise unemployment to around 10 million workers by 1992.
The first stage will be the hardest to swallow. On July 1 the central government will reduce its subsidies on bread, allowing the price of that Soviet staple to triple. Other price increases will follow next Jan. 1, with meat prices rising 130 percent, milk and sugar prices 200 percent and other nonfood consumer goods by 30 percent to 50 percent. Initially most of the new prices will be set by the government, not the market. Ryzhkov’s program envisions a new price structure in which 60 percent of all prices are set by the state, an additional 25 percent float within a prescribed range and only 15 percent are completely free. “The government is not proposing a market, only a price hike,” insisted parliamentarian Aleksei Levashov. Some economists had foreseen the folly of announcing major price increases seven months before they were to be implemented. “This will create a panic, an economic panic,” predicted Nikolai Petrakov, Gorbachev’s outspoken top economic aide, whose advice had been overruled by members of Ryzhkov’s staff.
The higher prices should absorb some of the excess rubles that have made money almost meaningless in the Soviet Union. But mindful of the social outcry that the increases will provoke, the government is proposing to put the bulk of those rubles back into circulation. According to the plan, Moscow would set aside 135 billion rubles as a safety net: low- to moderately paid workers would receive a 15 percent pay hike; more affluent wage earners, an additional 40 rubles a month. “They’re just setting off a wage-price spiral,” argues Stuart Brown, an economist at Georgetown University in Washington. “They haven’t taken a step forward, and they may have taken a step back.” Government economists argued the compensation program would make up for only 70 percent of the jump in retail prices. But there would be other heavy costs as well. To help contain unemployment, Maslyukov suggested, the government may expand programs to build roads and clean the environment. And Gennady Yanayev, the new trade-union chief, insisted that laid-off workers should be retrained–of course at public expense.
Vague words: If the Soviet currency has no realistic value at home, it is all but worthless in international trade. Thus economists were particularly disappointed that the government was unable to accelerate its target for making the rub]e freely exchangeable with Western currencies: Maslyukov spoke vaguely of making the ruble convertible in perhaps 10 years. With businessmen unable to convert their profits into hard currencies, Moscow will not lure the foreign investment it needs to retool its industry. “We are in danger of I being in deep economic isolation,” argued economist Vyacheslav Dashichev.
Could Soviet reforms proceed more rapid]y? Maybe not considering the deep disaffection of the population. Soviet officials are intrigued by the example of Poland. In 1987 Polish voters rejected a series of similar reforms proposed by the discredited government of Gen. Wojciech Jaruzelski, an event that hastened the end of communist domination in Poland. Today, despite its even tougher reforms, the new Solidarity-backed government enjoys an 85 percent approval rating. “The Soviet government does not have that kind of support,” says Abalkin. “It’s not pleasant to say that, but I have to look at things realistically.” For now the Soviets face the worst of both worlds: unpopular measures that may do little for either the economy or the legitimacy of the government.
Enjoying widespread popular support, the Polish government has been able to embark on radical economic reform. The current Soviet proposal would proceed far more slowly.
PRICES POLAND SOVIET UNION Eliminated subsidies on virtu- Government bureaucrats will ally every commodity; prices set or regulate the prices rose to market levels in little of 85 percent of the goods more than a week. sold in the country. WAGES Imposed an immediate and total Consumers will be compensated freeze on pay. Resisting wage for more than 70 percent of demands of striking railroad the purchasing power lost to workers. price increases. CURRENCY Price reform and a 46 percent Officials speak vaguely of devaluation produced a trade making the ruble fully surplus and a relatively con- convertible into Western vertible Polish zloty. currencies no earlier than the year 2000.
