A market economy cannot be decreed from Moscow. It can be created only from the bottom of society. As long as the bureaucratic apparatus stands between the people and their future, perestroika will continue to fail. This has been the core of our long-simmering dispute with President Mikhail Gorbachev and his prime minister, Nikolai Ryzhkov.
But Gorbachev's embrace of the new plan proposed by his two economic advisers, Nikolai Petrakov and Stanislav Shatalin, (which closely parallels Boris Yeltsin's "500-day program" for the radical transition to a market economy) may have turned the tide and salvaged the reform movement. It shows that Gorbachev has finally sided with the desperate citizenry who had all but lost faith in the prospect of improving their lives.In order to make room for initiative from below, the new plan calls for radical demonopolization of state industry, selling or leasing to private interests up to 70 percent of Soviet factories and 90 percent of construction enterprises, wholesale and retail stores, restaurants and other consumer services such as auto repair or barber shops.
Except for a price freeze on essential goods such as bread, all other prices would be deregulated. (The government wants to double the price of bread.) The Shatalin plan would also significantly slash defense spending and massive subsidies that have propped up the vast inefficient sectors of Soviet industry and agriculture.
Perhaps most important, the plan would grant each republic economic sovereignty - the "exclusive right" to regulate ownership, use and management of all wealth and resources within its territory.
Following these plans, the entire process of privatization is expected to be completed within two to three years.
After years of upheaval that have produced no results, what we need now above all is a stabilization period for the consumer. In the effort to satisfy the consumer, no resources should be held back, including gold reserves.
Ryzhkov has warned that the far-reaching changes we propose will generate a backlash because they "infringe upon the vital interests of the working people." But the backlash has already occurred - against the central government. That is why Yeltsin, Popov and I were elected. That is why Gorbachev was forced to accept the accelerated transition to the market.
The promise of a functioning market economy inspires more hope in the future than it inspires fear of unemployment and loss of security. The old ideology, which promised these things, but delivered stagnation for the masses and privileges for the communist elite, is thoroughly discredited. While the average Soviet citizen has not received any new "ideals," he has more faith in the untried future than in the certain past.
In any event, we are more likely to face a labor shortage than unemployment. The lack of services is so severe and the production of consumer goods so paltry in the Soviet Union that private growth in these sectors can more than absorb the layoffs from manufacturing that will result from cutting subsidies.
I believe that hope in an alternative future also has prepared the average Soviet citizen to live through coming price increases - even without an increase in salaries (which, if raised on a wide scale, would undermine the effort to mop up the inflationary glut of rubles).
What we have to focus on most of all is not keeping the lid on prices, but finding a way to fill the market with goods people want.
Having said that, the advantage we have over other countries in making a smooth transition to the market is that we have a price administration apparatus that can protect the less fortunate and destitute while the majority of society shifts to market relations.
The chief bottleneck in our consumer stabilization and privatization plans, of course, is a lack of funds. The state is near bankruptcy, and so are the people. That is why Western aid and investment are so crucial at this moment.
But Western aid should not be given to the central government in Moscow, and investments should not be channeled through the central authorities. If that happens, we may never be able to find out what happened to it. It would probably be stolen.
The best way for the West to assist the privatization of the Soviet economy is direct investment with particular individuals and in specific enterprises and projects. And there should be direct Western participation and oversight in commercial enterprises and projects so that they are kept honest and operate solely on the basis of economic criteria.
1990, New Perspectives Quarterly
Distributed by Los Angeles Times Syndicate