USSR REVIEW: IN THIS ISSUE: MANAGING CHANGE (SOV UR 86-006X)

Created: 12/1/1986

OCR scan of the original document, errors are possible

USSR Review1

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Contents

Gorbachev's Fvopssn BeOd. MeHaentn-

Despite Witt resistance from ihe bureaucracy. Gorbachev's ambitious program for -restructuring" the Soviet lyslem bus gamed demonstrable momentum in Politburo decisions and government legislation since the Soviet petty congress

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increments' anevoaeh to reform Urnits orar abihly lo predici how far he anil be *uiing. or able, to push bis ideas If pushed to Iheir eatreanea, ihey wouldadically different Soviet economy. The evidence that far. however, saggcats ihal hi* effort* to improve tbe system will be somethingrial -and error process and that the dimensions of the reform ultimately win be determinedombination of the ccossomK result* be obtains and bia ownilies

Managing Change

Perspective: Gorbachevs Program Builds Momentum

Whenh Soviet Party Congress adjourned ineneral Secretary Gorbachev had already moved with unprecedented speed to reshape the senior leadership, bast his ability to translate peruosnnel chances into action on his domestic agenda remained uncertain. Since then, his ambitious program Tor 'rcatrticturing" tbe Soviet system has gained demonstrable momentum in Politburo decisions and governmentHe clearly has encountered more resistance than be anticipated, however, and that resistance is reflected in the kind of changes be baa been able to make in economicImpressive when compared to tbe accomplishments of hit recent predecessors, but something loss than the "radicale has said is needed to revitalize the economy'.

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The pace of domestic policy initiatives has picked up noticeably since the congress, and the regime has already taken initial steps to implement most of Gorbaebev'* directives;

helpshift the bureaucracy's focus from niscrornaaagement to urslesjsc planning and coordination, centra] ccwdinatint bodies have beento oversee the energy, construction, "socialnd foreign trade sectors, in addition lo those for aaro-industrv and machine building announced before the congress C

response lo Gorbachev'* criticism of tbe wage-leveling trend of tbe Brcrhneveform was enacted in August that is designed lo widen substantially the disparity in wage* between workers who perform well and those who do not.

promiserovide greater loopc for Individual initiative has already brought new leaislstionpan* km of business opportunities for individuals and small croups outside the state sector, especially In coniumer goods and services. An October decree allows the formation of rnvjfit-tJsaring coorxralivcs to collect and sell recycled materiab.ew law passed in November unctions rrioonlighting by individuaUange of activities from cottage industries to medical services.

ambitious five-year legislative program was announced in August. If implemented, it will address most of the economic and social problem areas Gorbachev has identified. Tbe program includes specific target deadlines designed to keep up tbe presiure for further action.

One of the moat dramatic ceveloptncoU has been tbe new momentum acquired by hit glasnost (opennessJ policy, which it making ihe Soviet cultural scene more lively than nt any time since Khrushchev's cultural "thaw" ia. Films, books, and plays are no* being releaaed that deal expticilly with such sensitive issue* as Sarin's crimes, sndarc openly discussing, contemporaryuch as drug abuse, ihat were once taboo

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Signs of'progreas on the issue he placed squarely al the center of hisfurther strengthened his position. Industrial productionhole is expected to grow faster this year than at any other time since the, and agricultural output leerm headedecovery from iu two-year *lump

Gorbachev also has established increased personal control over foreign policy decision making during this period. He has largely succeeded in putting his own foreign policy team in place and has vigorously pushed policy initiatives that depart from previous Soviet diplomatic practice.

Signs of Resistance

Despite these successes. Gorbachev's own cornments. as well as some intelligence reporting, indicate that he has run into more resistance throughout thesystem than he initially anticipated. Hishis resistance has been evident inf the party and government bureaucracies. Tbe core ofmmediate problem is the vast party and government apparatus that has

successfully siifted previous effortshange tbe system. At tbe lower levels, Gorbachev has bad considerable ditBculty In rrakina the regional party organizations lesponsive to the desnands of tbe center, thanks in part to Brezhnev's la* pcu-ionficl policies that allowed tbern to become virtually independent fiefdoms

Resistance from the bureaucracy is reflected in the economic reform decrees that have been issued thus far, which have fallen short of the -radical reform" Gorbachev has called for in his speeches. His reforms have encountered resistance from ideoJdfloal ccetservatma and foot-tlrattint from government bureaucrats worried that the changes be projoscs will undermine their traditirjoal rxivuege* and status. Gca^jachev'. efforts to restrain the growth of defense spending and modify Soviet rxautirsos on aeenrity issues abo have caused scene reported uneasiness within the military.

indicate thai one short-term effect of Gorbachev's reforms

nas oeen to produce widespread confusion and disarray in the bureaucracy Many Soviet officials reportedly are finding it difficult to adjust to the pressure from Gorbachev for improved performance while trying to follow vague and often conflicting new instructions. -

Such lower-level resistance will become even more significant ifability toonsensus at the top Is in question. Gorbachev stillolitburo composedew loyalists who support him oo mostew opponents who tend to object to most of his ideas,roup io the middle whose members are persuaded one way or aoother on lhe merits of the issue or on the basis of their perceived interests C

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The problems Gorbachev is encountering are an inevitable response to tbe changes be Is attempting to impose on tbe system. They have not yet stalled his rsrotram or diminished his determination to improve tbe system. He acknowledges that he Isong-term task that could take "genera lions" to cemtplete. Bul even his Soviet sur<sorters are concerned that he will need to show new gains against his opponent- soon ir he is to snsUin the momentum for change he has generated.

Looking Ahee

Several developments over the neat few months will provide dues to Gorbachev's progress in dealing with the resistance:

Adherence to published large! dales foe reform legislation and how (lately thai legislation reflects his Ideas. Those targets have been met so far. aad significant delays or tbe passage of lee illation that lads substance would signal increased resistance

Trends in lhe reformesurgence cf publications byofficii Is. who have been rendered largely tUent by tbe current political atmoephere. would suggest that Gorbachev's reforms are coming under increased attack in tbe Politburo.

The momentum esf Gcrbache-r's glainostetreat from tbe decision to deal more openly with sensitive issues wouldtrengthened position for the conservatives, who believe such openness could undermine the regime's legitimacy, and woulderious Mow to Gorbachev's effort to attack the root problems of tbe system.

How vigorously Gorbachevs social poHdes are implemented. If his antialcobollsm measures eventually are ignored or significantly scaled back, for rumple, the failure of that campaign cook reflect an erosion of his political strength

Gorbachev also will need to demonstrate progress in meeting his goals of modernizing Soviet industry, bcreasing ecceKwxic efficiency aad discipline, and improving tbe quality, quantity, and variety of consumer goods and services. Published Soviet economic data, as well as Informationariety of other sources, will help determine whether Gorbachev is obtaining tbe kind of early positive returns in these areas that be will need to sustain the current momentum of his ecrjoomic program C

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Gorbachev's "Radicalrogress Report'

the march, as we go along" suggests that he himsdf has not yet fully come to grips wilh such questions.

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Although Gorbachev baa yet toetailed blueprint for reform, he already has embraced many of tbe reform economists' ideas and calledumber cf changes lhat, erhea raeced tog ether,earer picture of the toad cf reform be has in mind. Briefly stated, the changes he has beenwould:

the central bureaucracy aad shift its focus from day-to-day management to itrategic planning and coordination.

Increase the authority aad resporaucahty ofand agricultural enterprises.

Improve workers' incentives.

lacrease tbe beiibility of prices.

Eapand tha role cf persceial initiative in both the state and private sectors

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An impressive number of economic managementhave been issued since Ihe party congress, ant! almost all cf them bear this Gorbachev imprint (ace anactk Few of these decisions go as far as the bead ideas advanced in his speeches, however, suggesting lhat be may have initially underestimated both tbe compksity ef tbe issues involved and thecapacity for reaiataacc lo chaage

Taken together, ibe maaagerricat reform decisions baaed since (ba party naagiaai In6 Sovietrortg puah ia diieciioaa lhatand reform-minded economists haveBai Ihey abo reveal tbe magnitude and compleiity of iha chalrnaa Gorbachev races and the decree of political coenpeoenise reojaired ia what be himself has deacribedout, "nop by step"

lradical reform" of Soviet economic truugemcot al tbe party maariaa marked the first timeramatic remedy had been prescribed by any Soviet efheial la recent years. In lhe moniha since the congress, he has fartherbis rhetoric comparing tha reformrevel Mon" and deacribini itajor turning point in Soviet history. His atrang commitment to reform abo is reflectedhanged political environment that has turned economists whose ideas were onceoutside Ibc malnilream into establishment figures

iktornerstone cf Oor-bachev's reform effort has ben hb it tempi toand streamline the central economicHb inaUience lhat Ihii bureaucracy shift its focus from day-to-day management to Hreiegic ratarining and coordination has been reflectedumber of organiutional changes since the congress. Central coordinatingihe form ef bureaus, scale committees, andbeen established

Precisely what Gorbachev meant by "radicalowever, remains unclear. He has described the goals cf his reforma the broadest terms, calling it aa atieeipt to make the economy "function dynamically,elf-regulatingbel Aganbcgyan, one of hb chief economic advisers, has used similar bnguage, idling Westerners thai the reform will eliminate the "dictatorship of the producer" and make the economy more responsive to demand

Such statements make Ihe thrust of Gorbachev's reform effort fairly straigbtforward but tell us little about iia intended dimensions When combined with his reference* to the primacy of centraLred planning and the continued adoption cf taat plana, tbey leave considerable ambiguities about bowoleforces might be allowed to day aad how mucho be introduced. Aadasset'ion that the reform is to be conducted "on

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Proreantiarton off err/en leede. Reform Of Iht watt puucfn.

Awvot of Ike fiiundtl autonomy experiment ai the Knhan Agre-lndvilrtal Combine and an announcement thatlmtttr eemtlnei are K> bt ttubttiktd.

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Xo crrertee ministries responsible for energy, conitruc-lion, "social clevelopment,'" and foreign traae.newStale Committee for Com-paler Tcrhnesogy and Information Science and the Ministry of Atomichave been csiab-liahed to perform work that previously had been scattered among several different agrmctea.'

These mover all seem aimed at improving Moscow's ability to coordinate actrvttir*iven economic sector, bot they also have created yet anotherlayer and, unlike the earlier reorganization of the agro-industrial sector, have dorse lime to meet Gorbachev's stated goal of paring the tiae of the economic bureaucracy. The agro-industrialwhichumber of ministries, proved to be highly disruptive, and hopes for reducing the size of the bureaucracy now appear to rest on the completion of conversiontwo-tier" management structure advocated by Gorbachev. This steptbe all-union industriallayer between the minis tries' higherand the production enterprises.

Increasing Enierprtte Autonomy. In his effort to irsereise the authority and responsibility of industrial enterprises. Gorbachev's most significant achievement may turn out toew law. scheduled to be adopted at the neat session of tbe Supreme Soviet, that codifies the enterprises' rights and gives them legal protection from bureaucratic rneddling. (It remains to be seen, of course, bow strictly the law's wovUions will bether measures are more limited In tberr coverage. They give selected enterprises the right tec

Deal more directly with their suppliers, rather than tunneling tbeir requirements through authorities in Moscow.

Trade directly with foreign firms.

Base their production plans on trade orders from customer*.

1impoiUK oriin-ullofdl cbsfjes preceded Ibe rearrest. Tin

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Miauiil Committeeis* filkmnj month by rmrtinilniiiisod Fate cr*nautlres respcutfbtc toreaUHit

ExerciM greater financial autonomy andarger percentnge of iheir profits.

AJ though these measure*niucanltoward increased enterprise autonomy, many of themtomall number of enterprises or contain other rmtricuOro that limit tbeir impact:

. The decree slicing enterprise, lo acquire their .applies through "wboleaare trade" appliesto enterprises of -nonproductton" minUtrles. like the Ministry of Culture, and excludes most of those In tbe Industrial sector, where the supply pcoMem* Gorbachev has complained about have been most acute.

. Althoughnterprises have been given the right to engage directly in foreign trade, that right Is limited to -above-plan" production, and tbe enterprises can keep part of the resulting revenues only if the Foreign Trade Bank approves of their intended use of the funds.

The decree allowing enterprises to bate Iheirplans on orders from their customers applies only to the light industry sector and is weakened by it- failure to allow enterprises to choose their own suppliers and by tbe continued priority assigned to centrally set targets.

that put an end to the tiatc'a confiscation of all farm surpluses and established stable, relatively lowlarge!*.

When the decree wa. pobUshed io March, It* cakf decentralrrmg effect was to allow local official* to set their own targets for produce intended for "local lupply- and to achange food product* with othernstead of channeling their request* through Moscow. Farm* were abo given the right to sell an increased percentage of their planned production at elective farm markets and through consumer coop-eratrvea. The tax-in-kind symbolism -as completely absent from tbe language of tbe decree, however, and there were no indicslions that the state'a procurement targets would be significantlynecessary atep for any major cteexrmrJixalion of production CMlrob.' *

Another .tep toward agricultural decentralization came in September, when Gorbachev visited the Kuban Agro-Industrialtileell-known experiment in agricultural trslf-financing-to give the experiment his personal endorsement. Hi* visit wat followed byapproval of the expen-merrl and aa aunouncement thatimilar combines would be formed. Here, too. however, the cootinua-tico of high state procurement target* serve* to limit the discretionary authority thai can be exercised by inch combines, even on an caperimcntal bests.

imited number of enterprises will switch neat year to the kind of "complete financialnow exercised by pUnts in Sumy and Tol'yatti. and thai autonomy will not include any price-setuog authority.'

fuxtmralltlng Agricultural Authority. As part of his effort to decentralize authority in the agricultural aector. Gorbachev told the party congress thatand state farm* should be given greater control ewer the ssk of theirproduction. He conveyed tbe impressionajor reform on that Issue was in the works by callinga contemporary version of Lenin'sistoric measure

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improving Workers' incentlva.hief acceenplishmeni in tbe area of workers' incentive* has been tbe passageage reform designed to reverse ibe leveling trend of the Brezhnev year* andloser relaucnship between the workers' pay and tbe amount and duality of work they produce. Although this reform snsount*ay increase for many categories of workers, no state funds have been set aside for that iiicrease. The effectiveness of tbe reform

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depend on whether (h> enterprises can raise productiviiy enough lo finance theae increases from their own resources '

Increasing Price flexibility. Although Gorbache* has never suggested abandoning tbe system ofprices, be has called for more "flexible" prices that reflect not only tbe costs of production but alto other factors such aa social utility and demand. Tbe agro- industrial decreeodest step in that direction by allowing republic officials to set their own procure mem prices for individual farm products, as long as the total budget is not exceeded. Tbe timidity of this move and the fact that it ha* had no parallel in the industrial sector, however, lead credibility to reports from Soviet economists that pricing policyighly contentious issue.' "*

Implementing lie Reform

Many of (hese measurei have proved even more difficult to implement than tbey were to enact.reorganization cf the economic bureaucracy, for example, has not gone smoothly. Tbe dost has yetettle from the agro-industrial reorganization that startedear ago, and the foreign trade bureaucracy is said to be in considerable disarray. An ttvcstlya editor claims that the Fod and Energy Bureau established in March still has no dearAnd the Stale Planning Committee (Gosplan) has been slow to restructure its work. In anspeech ddiveredriters" group in June, Gorbachev complained that Gosplan officials were continuing to "do what they want to do" and seemed to recognize "no general tecTetnrves Or central' *

Personal Initiative. Gorbachev'sof family farms, individual garden plots, and tbe broader use of cooperatives in consumer services abo have offered encouragement to those economists who favor an expansion of personalHb promise to provide greater scope forinitiative has already brought new legislation sanctioning expanded business opportunities forand small groups outside the state sector, especially in consumer goods and services. Andecree allows the formation of profit-sharing cooperatives to collect and sdl recyded materials,ew law passed in November sanctionsby individualsange of activities from cottage industries to medical services. The impact of the decree ontnlted, however, by its em phatis on the "experimental" nature of the cooper-atives and by restrictions on the categories of people allowed to formnd it remains to be seen whether the new law oa individual labor activity can undo tbe damage caused by earlier decrees onincome" that hare caused widespreadabout Ihe legalities of certain activities and have served to discourage individual initiative

Gorbachev's effort to give enterprise managersautonomy apparently has been encounteringnot only from the expectedabo from the enterprise managers themselves. In his speech to the writers' group, he complained that many enterprise directors wereto the Central Committee to say: "We don't need rights and independence. Leave everything the way it was."

Conclusions! An Incremental Reform Despite these problems. Gorbachev seems determined to persevere,ublished Ibt of future measures now la theregulations governingoperationsevised pricingno scaling down of long-term objectives. Hb economic advisers and other Soviet economists have estimated lhat tbe "first phase" of the reform will not be completend Gorbachev reportedly totd the writers' group that it could takefor tbe restructuring process to be completed With that kind of timetable, he probably regards the measures adopted thus far as steps that lay the necessary groundwork for more far-reaching change.

I new mmly aimcmpceitive* ire la be CMtyttaad primarily

of retired peopcC. boiaealvn, and ilwSenls. Factory and oAce worUn may tuilkiraie only in Hair free time

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oon oeed plana lo expand and put mote lecib in tome of lhe decree* Initially adopted (such at iboae on wholesale trade and agro-Industrial manage-avant) clearly indicaie Ibai behit reform aa an iocrerpcntnl prooeaa. Whether dictated by political reabuca or ba* owu aaoritalatita. inch aa approach has both benefits aad drawbacks:

By movingradual aral deliberate pace, ba can avoid chart; es of reckleaaneaa and comparison* with Khruahcbev'a "harebrained- scheme*.

On lhe other band, ihii incremental approach may ccal him arane af his refcesrrist supporters and produce onlyear-term results, providingamuniiion in tha opposition.

This irierementalLsm also leverely limits our ability to predict how far Oorbachev will be willing, or able, to push fala Ideas. If pushedheir extremes, they wouldadically different Soviet economy. The evidence thus far, bcra-ever. seggcsls that his efiorta to improve tbe system will be acoveihingrial end-error pn*eis (he has openly rxedicted lhat "rnisiaaea will bend that tbe dimensions of the reform ultimately will be determinedombination of the economic results he obiaina and his own political abilities,-

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