USSR AND EASTERN EUROPE REVIEW (U)

Created: 8/30/1979

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USSR AND EASTERN EUROPE REVIEW (U)9 CONTENTS

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of economic administration by President Brezhnev and other leaders over the past six months, changes recently introduced in the planning mechanism,ecent article by Kosygin indicate that the line of march for the remainder of the Brezhnev era has been set in the direction of greater centralized planning and enhanced bureaucratic elements in economicion, with modest changes in plan indicators. The debate that does exist within the leadership and at lowerechelons takes the traditional planning systemiven and focuses on changes in details, some ot which are politically important-especially the proper balance between regional and Production:branch planning, institutionalor interministerial pioq.am coordination, and the role to beplayed in economicby the party apparatus.

Resource Allocation

With the slowing of the Soviet economy, and the need over the coming months to determine priorities forive-year plan, controversy over resourcedecisions will become increasingly acute. The key issues are:

Balance in the economy. Premiered by the State Planning cowtuttee and muchcentral

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proach that avoids crash campaigns or abrupt shifts in prevailing resource allocation patterns that might ag-lltTAe already serious.interbranch and interregional imbalances, as well as jeopardize vested instltutional interests. The big development project approachby Brezhnev runs counter to this preference forand incremental change.

The rate of investment. ecent statementto quide draitingthe next five-yearcommits himself tof growth in investment intheand beyond should be less than the ratein nationali^en thedeci.nix^ rateof national income in

formula-which has been supported in the current five-year plan by Brezhnev-would dictate extremely small

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future increases in capital investment. If theis carried out, it will tend to depress growth of national income even further, unless productivity gains far exceed anythirjqthe Soviets have been able to achieve so far.

Slower economic growth will alleviate pressure on energy, raw materials, and labor (which mayentralnd it may enable managers to pay qreater attention to efficiency and quality, but it willbly also intensify conflict over the allocation of Kosygin's formula, which breaks with tradition and implicitly accepts low growthong-term feature of Soviet economic life, will be challenged by demands from all sectors of the economy for greatery political leaders who articulate these demands.

Agriculture. umber of years Soviet leaders have displayeda keen sensitivity to popularwith the food supply, and with meat shortages in particular. The likelihoodoor harvest this year has evoked further manifestations of leadership nervousness over the inability to satisfy consumer For example, Belorussian party chief Petrandidate member of the Politburo, declared in late June that the "unusually serious" agricultural situation threatened to "undermine people's faith in the real'achievements of the economy."

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by the chronic weakness of agriculture, the Sovietstrong pressure fromcommitted itself5 to massivein this sector. At the8 Plenum of the Central Committee, which Brezhnev hoped would set the line on agricultural investment policy forive-year plan, Brezhnev argued that not less thanercent of total capital investment should be targeted for agriculture.

In the past, some PolitburoCommittee secretaryikely successor toquestioned whether this level ofis the best solution to Soviet agricultural problems; and there are indicationsumber of Politburo members might like to pare down agricultural

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At the8 Plenum, Brezhnevbacktracked by implying that some agricultural funds should be earmarked for improving food processing and distribution. This rationale for restraint inspending, even in the face of current foodhas recently been amplified by Kosygin, who argues-that consumer needs will be better satisfied if some of the funds earmarked for agriculture are shifted toother sectors that supply agriculture or process-and market agricultural products,

Military spending. It is unlikely that any of the top Soviet leaders favor steep cuts in military spending, or even view these as possible in the presentenvironment. Yet there appear to be gradations of commitment to the military budget among Politburo members. For example, regional party bosses Romanov (Leningrad) and Grishin (Moscow) seem to favor highspending; Bre2hnev, Kirilenko, and Gromyko are somewhere in the middle; and Kosygin, Committee of State Security chief Andropov, and Central Committee Secretary Chernenko are apparently at the low end.

Deceleration of the rate of economic growth may force Soviet policymakers to examine more closely the opportunity costs of maintaining theercent annual growth in military spending. In this context it may be significant that Minister of Defense Ustinov has, on several occasions, explicitly stated that military capability depends upon the general growth and technological modernization of the Soviet economy--perhapseed for some restraint in military spending.

Siberian development. Soviet leaders do notover the need for fairly rapid Siberianthey apparently do not always see eye to eyethe proper pace of this effort or on thedistribution of resources within this vast The State Planning Committee, which has tofunds, has tended to put the brakes on Siberianand Kosygin follows suit. He takes aline, and favors narrowly based resourcerather than comprehensive development inaccessible parts of Siberia.

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This approach contrasts with that of Brezhnev who, during his trip through Siberia in the springpeed-up in Siberian development. It also is at odds with the position of the regime's top ideological spokesman, Suslov, whose rationale foreference to the present underpopulated state of the region and the effect development will have on "strengthening our defense capability."

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Energy Problem

th Partyolicy line was established that calledradual shift toward coal and nuclear power in the energy balance. Buthis trip to Siberiarezhnev came outin favoroncentration of effort on oil production in West Siberia. What is at stake here is not the enormous investment that must be made in the West Siberian oilfields (there is no choice in thisut the level of simultaneous investment that should be made in the nuclear power industry and in developing the huge lignite^reserves of the Kansk-Achinsk basin in central Siberia. bbbbbI

evidence suggests that Kosygin, probablyby most top Soviet energy specialists, continues to push hard for greater investment in nuclear power and in Kansk-Achinsk coal despite Brezhnev's Westcampaign. The implication of this more farsighted policy is that total investment in energy, already risingapidly accelerating rate, should rise even morestill more pressure on other sectors that Brezhnev might wish to protect, such as agriculture or defense.

Energy policy and oil production, in particular, are integrally related to one of the most important Soviet foreign policyhegemony in Eastern Europe. 8 the USSR exportedillion barrels per day) of oil to Eastern Europe, which represented aboutercent of Soviet oil exports andercent of total production. Oil exports to the West8 accounted for approximatelyercent of Soviet hard-currency earnings. In the light of ourof sharply declining Soviet oil production in

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the, we expect that the Soviets will be faced with an increasingly cruel choice betweentheir available export surplus to themarket, thereby earning the wherewithal to purchase vitally needed grain and advanced Western technology, or to Eastern Europe, therebyolitically dangerous drop in economic growth and decline in living standards in this strategic region.

For several years the Soviets have been urgingEuropeans toapid program ofcoal substitution, and nuclear powerand have at the same time been threateningwill not increase oil deliverieseven reduce them. It is in the Soviet interestoil deliveries to Eastern Europe at theand politically tolerable level. Iteasy, however, for the Soviets to miscalculate They resent having to supply fuel toforgoing hard-currency income whilestandards higher than their own, and there are

reports of disagreement at middle levels in the Soviet bureaucracy over how much oil to give Eastern Europe. There is no evidence that the Soviet leadership isdivided over the issue, but the likelihood of tensions will increase as the exportable surplus shrinks.

The Labor Problem

There has always been some pulling and hauling within the Soviet leadership over the proper approach to be taken toward the labor force, and this continues to be true in the present. Among Politburo members there appear to be different assessments of theof shortages of food, consumer goods, and housing. Different conclusions are drawn as to the implications of deficiencies in consumption. Some leaders emphasize the negative impact that shortages have on the labor effort of the population and on its political morale. Others call for greater discipline, sacrifice, andcommitment. Brezhnev, for example, has publicly hintedubstantial improvement in consumer welfare is notrecondition for raising labor productivity but is also related to the maintenance of political Kosygin argues that labor productivity now depends

uponorking environment more con-efficiency. He is clearly worried about the

IhlIupply of consumeri faJlsJto match monetary income, as well as bytendencies in wage payments. His solution to

s training and retraining to promote job mobility, ratherolitically Sore risky frontal attack on laborwould offerallevi*tio* of the Sovret labor

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feasting attitude, probably deeply rooted among Soviet leaders, was displayedecent comment by Minister of Foreign Trade Nikolay Patolichev. After bragging about how the Soviets had built three blast furnacesarren plain in the Urals in eight monthse added "You know, when Leonid Brezhnev says, tighten the belts by oneveryone will do it, and the effect will be tremendous." '

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For the time being, Soviet leaders perceive no need for radical change in either their present system of running the economy or their resource allocationdespite the economic dilemmas that confront them. The effective day-to-day management of the economy lies in the hands of Kosygin, whose inclinations are to adiust to economic difficulties, enforce strict allocational priorities in all sectors, and introduce only minor

raditional centralized planning mechanism (which in fact is all that has been done in the recent decree on planning). While Kosygin evidently disagrees

re2hnevt should be the proper emphasis in cl>io<2SYrs certain policy areas, such as agriculture, energy, and

Siberian investment, we have no evidence that the Soviet leadershiphole is divided into clearly identifiable factions on economic issues. mmma

0 fundamental policy decisions will have to be reached on the five-year plan. This deadline will intensify demands from all sectors for more resources, without leading toonsistent and effective program for dealing with the Soviet Union's serious economic problems, when Brezhnev passes from the scene, the diffusion of power

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that will exist is likely to multiply the difficulties ofoherent long-term strategy that might offend one or more of the constellations of powerful bureaucratic interests.

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