Created: 1/1/1979

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USSR: How Soviet Leaders View Their Economic Problems

Soviet leaders are veil awste of the increasingly poor performance of their.economy. They have been unable, however, to come upomprehensive program that promisea significant improvement in the economicThis article examines how Soviet leadersthe economic dilcmaas that confront the USSR, and what solutions they appear to favor. (U)

Management of the Economy

There is general agreement within the leadership, at least in principle, that the main objective now ought to he to increase economic efficiency rather than to proceed along the old path of expanding output at any cost. Yet probably most top Soviet leaders do not really understand the underlying reasons why radical changes in the existing system of centralized physical planning are required to generate the technological innovation, improvement in quality, and rise in productivity that they seek. They intuitively do understand, however, that measures which might be associated with various strategies of seriousas devolution ofthe determination of prices andof resources through market mechanisms, or the provision of incentives and power to managers to reduce widespreadthe risk of reducing the Coamunist Party's influence, accelerating ideological erosion, encouraging non-Russian ethnic assertiveness, and provoking political instability. (U)

Even Premier Kosygin, who in theorceful proponent of profit, prices, and costno longer strongly emphasizes the role of these economic levers. He now argues that the solution to Soviet economic problems lies in forcing the pace of technological innovation, even if this is not supported by managerial incentives. (U)

Discussion 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 economic adrainstra-tion, 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 of which are politicallythe proper balance between regional and production-branch planning, institutional arrangements for interrainisterial program coordination, and the role to be played in economicby the party apparatus. (U)


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. Premier Kosygin, backed by the State Planning Committee and much of the central economic bureaucracy, evidentlyalancedthat avoids crash campaigns or abrupt shifts in prevailing resource allocation patterns that mightalready serious interbranch and interregional imbalances, as well as jeopardize vested institutional interests. The big development project approach espoused by Brezhnev runs counter to this preference forand incremental change. (U)

The rate of investment. ecent statement in-tended to guide drafting of the next five-year plan, Kosygin unequivocally commits himself to the principle that the rate of growth in investment in thend beyond should be less than.the rate of growth in national income. Given the declining rate of growth of national income in recent years, Kosygin'shas been supported in the current five-year plan bydictate extremely small

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 anything the Soviets have been able to achieve so far. (U)

Slower economic growth will alleviate pressure on energy, raw materials, and labor (which mayentral,nd it may enable managers to pay greater attention to efficiency and quality, but it willalso 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 greater investment, and by political leaders who articulate these demands. (U)

Agriculture. umber of years Soviet leaders haveeen 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." (U)

Confronted 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. (U)

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

allocations. 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 Kosycfin, who argues that consumer needs wall be better satisfied if some of the funds earmarked for agriculture are shifted toother sectors that supply agriculture or process and market agricultural products. (U)

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 Crishin (Moscow) Ecera to favor highspending; Brezhnev, 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. (U)

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 Sovietperhapseed for some restraint in military spending. (U)

Siberian development. Soviet leaders do notover the need for fairly rapid Siberian development, but they apparently do not always see eye to eye on precisely the proper pace of this effort or on thedistribution of resources within this vast The State Planning Committee, which has to find the funds, has tended to put the brakes on Siberianand Kosygin follows suit. Heautious, gradualist line, and favors narrowly based resource ex-

loitation rather than comprehensive development in the

ess accessible parts of Siberia. (U)

This approach contrasts with that of Brezhnev who, during his trip through Siberia in the springpeed-up in Siberian development. It also is at ccds with the position of the regime's tcp 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." (U)

The 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, (u)

The evidence suggests that Kosygin, probablyby most top Soviet energy specialists, continues to push fiard for greater investment in nuclear power and in Kansk-Achinsk coal despite Brezhnev's Westcampaign. The implication of this raore 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. (U)

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

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 vjtally 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. (U)

For several years the Soviets have been urging the East Europeans toapid program of energy conservation, coal substitution, and nuclear powerand have at the same time been threatening that they will not increase oil deliveriesnd may even reduce them. It is in the Soviet interest to keep oil deliveries to Eastern Europe at the minimum economically and politically tolerable level. It would be easy, however, for the Soviets to miscalculate this threshold. They resent having to supply fuel to Eastern Europe, forgoing hard-currency income while supporting living standards 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. (U)

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 Dolitical Kosygin argues that labor productivity now depends

directly uponorking environment moreto efficiency. He is clearly worried about the influence on productivityupply of consumer goods that fails to match monetary income, as well as bytendencies in wage payments. His solution to labor force redundancy is training and retraining toobility, ratherolitically more risky frontal attack on laborwould offer the quickest short-term alleviation of the Soviet labor supply problem. (U)


vlme beinge Sovaet leaders perceive no need

n either their present system of running the economy or their resource allocation priori-

SeS?- 5he economic dilemmas that confront them.

SctiVey "anagement of the economy lies

sWn' whose inclinations are to adjust to economic_difficulties, enforce strict allocational

rilnall Jkors' and introduce only minor

radJtional centralized planning mechanism

rwr^i. that nas been done in thenning). While Kosygin evidently disagrees

d be Cheemphasil in %tlltin Policy areas, such as agriculture, energy, and

nVestn,eS^ w? have no evidence that the Soviet* wh?le.isnto clearly identifiable tactions on economic issues. (U) .

havpundamental policy decisions will rhit JL^-reaCMdhe five-year plan. This deadline will intensify demands from all sectors

esoufces- without leading to the crystalliza-acc0nsjstent and effective program for dealing

E2?r,let Uni0"'s serious economic problems. When Brezhnev passes from the scene, the diffusion of power

J-stkely to multiply the difficultiesoherent long-term strategy that might

estellations ofureaucratic interests. (U)

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