Soviets Demand More of East Bloc : Seek Higher-Quality Goods, Offer Less in Effort to Direct Economies

The Soviet Union, under the vigorous new leadership of Mikhail S. Gorbachev, is making its most determined effort in 20 years to bind the economics of Eastern Europe more tightly to its own and to direct them more effectively to serve Soviet needs.

After years of subsidizing Eastern European economies with relatively cheap oil in exchange for shoddy goods, Moscow has begun to turn the tables on its nominal allies. It is demanding growing amounts of high-quality machinery, modern consumer goods, processed food and advanced technology--in exchange for smaller amounts of oil.

Allies Subsidize Projects

During the last year, Moscow has also induced its East European partners--Poland, East Germany, Hungary, Czechoslovakia, Bulgaria and Romania--to subsidize major new Soviet projects for the development of natural gas resources and iron ore resources, in addition to ongoing nuclear power projects. The Soviet Union will pay back Eastern Europe’s investments in the form of energy and raw materials but then will continue to profit from these multibillion-dollar projects for decades to come.

At the same time, the Soviets are seeking to tap the scientific and technological resources of Eastern Europe to a growing degree and to coordinate the economic plans of its six Warsaw Pact allies with a greater emphasis on Soviet priorities.

Accordingly, the Communist Party newspaper Pravda said June 15, all Soviet government ministries are now under instructions to plan on the “fuller . . . cooperation” of Moscow’s trading partners “to solve major national economic problems.”

Soviet economic planning is to be coordinated more closely with its six Eastern European partners through annual meetings of the party secretaries in charge of economic affairs. The first such meeting was held in May.

Threat Arouses Fears

The threat of an increasing Soviet drain on the economies of Eastern Europe has aroused fears that their already slow growth will stagnate still further. This in turn raises the prospects of curtailed trade with the West and added difficulty in servicing a Western debt that stands at a combined total of about $59 billion.

And with stagnation comes the risk of still deeper public discontent over living standards that, while generally higher than in the Soviet Union, lag well behind those of Western Europe.

Conservative Atmosphere

Moscow, moreover, is driving its hard new bargain with Eastern Europe in a conservative political atmosphere that so far has offered no encouragement at all for the liberal economic reforms that many hold out as the chief hope for a better life under communism.

Recent statements by Soviet Politburo members and by Pravda suggest that the Gorbachev leadership will not welcome any new relaxation of Stalinist-style central planning or the blossoming of small private enterprise--the market-oriented reforms that Hungary has pioneered since the late 1960s with notable success and that Poland is trying to adapt to its own economy.

“Some scholars,” said a June 21 Pravda article that has received wide attention in Eastern Europe, “campaign for a weakening of state levers regulating economic development, especially centralized planning, and for the introduction of market competition and an increased share for the private sector.”

Serious Consequences

However, the article warned, “This ignores the main fact that a widening of the private sector is fraught with serious economic, social and ideological consequences, above all . . . violations of social justice and a consequent increase in social tension.”

Instead, Pravda declared, current circumstances, including the troubles of Eastern Europe’s debt-burdened economies and the recent history of American trade sanctions against the Soviet Union and Poland, demand a “qualitatively new level of economic integration” within the Soviet Bloc as well as “stricter criteria of alliance, solidarity and coordination” in relations with the West.

In short: less deviation, politically and economically, from the Soviet norm.

Tough Soviet Line

Less than a week following the article, at a meeting in Warsaw of the Council for Mutual Economic Assistance (known as the CMEA, or Comecon), the Soviet-led trading bloc, the new second-ranked member of the Soviet Politburo, Yegor K. Ligachev, was reported by the Yugoslav press agency Tanjug to have told the session that there would be “no leaning toward a market economy or private enterprise” by Comecon members.

On June 26, as the two-day meeting opened in Warsaw, Gorbachev himself said in a speech in the Soviet Ukraine that the essential task ahead is one of “deepening the economic cooperation, the economic integration” of the Soviet Union and its trading partners.

But the Soviet demand for tighter economic integration within the trading bloc that it dominates has been a familiar theme to Eastern Europeans for 36 years, and the success of Moscow’s current campaign is by no means assured. Perhaps the most ambitious effort until recently was by Premier Nikita S. Khrushchev, shortly before his ouster in 1964, when he sought--and ultimately failed--to transform Comecon into a unified, supranational planning agency to direct the economies of Eastern Europe much as Moscow controls the 15 constituent Soviet republics.

‘Listening Politely’

“These countries have a long history of listening politely and doing as little as possible to comply,” a Western economic analyst in Warsaw observed. “They know how to dance, how to roll with the punches. On the other hand, the Soviets have a vigorous new leader and a new instrumentality in the form of energy supplies.”

Energy, chiefly oil, is the catalyst driving Moscow’s changing stance toward trade with Eastern Europe. It also provides the Russians with the means of enforcing political and ideological discipline, although there is no clear evidence that they have yet used the “energy club” for this purpose.

With little petroleum or natural gas of its own and little hard currency to buy them on the world market, Eastern Europe depends almost totally on Soviet supplies. Until recently, Romania--with the Soviet Bloc’s second-largest oil and gas reserves--was an exception, but falling production is now making it increasingly dependent on the Soviet Union.

As late as 1979, Soviet Premier Alexei N. Kosygin publicly promised steady growth in oil exports to Eastern Europe at least until 1985, despite the fact that Moscow also depended on its oil exports to the West for 60% of the hard currency it needed to buy grain and machinery. Even then, Soviet oil production had begun to level off, and the cost of exploiting the main fields in the inhospitable reaches of Western Siberia was rising, but Soviet leaders were apparently slow to absorb the implications of these trends.

Partners Stunned

Then in 1982, Moscow stunned its Eastern European partners by announcing a 10% cut in their oil supplies over the next three years--even as Soviet oil exports to the West continued at record levels to pay for record imports of grain. Last year, for the first time since World War II, Soviet oil production fell slightly, possibly signaling the onset of the long-term decline that Western analysts have anticipated since the 1970s.

Supply, however, was only half the problem. As its oil crisis developed, Moscow seemed to awaken equally slowly to the realization that the prices it charged its East European partners for oil and other exports were well below world prices and that it was receiving in return often shoddy or obsolete goods that Eastern Europeans could sell nowhere else but in the Soviet Union, whose own industrial standards were no less lax.

By selling oil cheaply to its partners and forgoing higher prices available on the world market, the Soviets subsidized the economies of Eastern Europe, whose factories, with little incentive until recently to think about conservation, still consume 50% to 70% more energy than comparable Western industries for a given amount of output. From 1971 through 1980, according to Western estimates, the Soviet trade subsidy--primarily in oil--amounted to between $16 billion and $21 billion.

Change by Andropov

An initiative by Moscow to reverse the terms of trade and demand closer coordination with its own economy began under the leadership of President Yuri V. Andropov before his death early last year. Gorbachev has continued this effort, along with other features of his mentor’s economic program.

“You don’t have to look very far beyond economics to explain why the Soviets are doing what they are,” a senior Western diplomat in Warsaw said. “I imagine they’re tired of being paid in cheap plastic raincoats . . . . They probably think an empire ought to be more than an expensive luxury.”

In June, 1984, a watershed in Soviet-East European trade relations was reached in Moscow at the first Comecon summit meeting in 13 years. Gorbachev was still nine months away from succeeding the ailing Konstantin U. Chernenko. But as the acknowledged second-ranked member of the Politburo, he already wielded major influence over economic policy and almost certainly played a central role in evolving relations with the Comecon countries, which also include Vietnam, Mongolia and Cuba.

Soviet oil prices were already rising in keeping with a longstanding formula based on a five-year moving average of world prices. Now Moscow began to demand higher-quality goods in payment of the higher prices, goods of the sort Eastern Europeans have traditionally held back for export to the West.

Turning Point

“The June summit was a turning point,” an informed Polish observer said. “The Soviets said, ‘If you want more oil and gas, you give us more quality goods and more advanced technology.’ Never before had they put it so strongly.”

No subject is more sensitive in Eastern Europe than relations with the Soviet Union, and there is consequently almost no public discussion of the subject, even in Hungary and Poland, the region’s two most open countries.

Last November, however, after a visit to Moscow by a Hungarian delegation headed by Premier Gyorgy Lazar, the state newspaper Nepszabadsag bluntly informed Hungarians that they would henceforth be obliged to pay significantly more, in premium goods, for Soviet raw materials.

“Distinct from earlier practice, products that will help supply the Soviet population will make up a larger share of our exports than in the past,” the newspaper said. “Our deliveries must be made more attractive than at present, in return for vital raw materials and energy resources.”

Hungary’s Exports to Rise

According to unofficial reports, Hungary’s exports of food and consumer goods to the Soviet Union are to rise by 25% over the next five years, in return for increased supplies of gas and electricity. Oil deliveries are to remain steady, despite Hungary’s requests for more.

As it is, Hungary, a country of 10 million people--less than the combined populations of Moscow and Leningrad--already provides half the Soviet Union’s imported fresh fruit, a quarter of its imported pharmaceuticals and 90% of its imported buses for public transport.

As a measure of the rising cost of doing business with Moscow, an American specialist, Charles Gati at Union College, Schenectady, N.Y., estimates that a million tons of oil, which cost Hungary 800 of its high-quality Ikarus buses in 1974, may now cost 4,000 of the same buses, which Hungary would prefer to sell to Western countries.

Poland, which has a $28-billion dollar debt to the West, a 4.5-billion ruble ($6.3-billion) debt to Moscow and a stagnating economy incapable of meeting its interest payments, is also under new pressure to increase its high-quality exports to the Soviet Union amid rising fuel costs.

Fuel Costs Up Sharply

Last month, a local news broadcast in Poland’s Baltic port city of Szczecin disclosed that fuel costs for the Polish state shipping firm have risen 25% since last year to a level that makes it reasonable to consider buying fuel on the world market.

Less than a week earlier, at the end of the Comecon meeting in Warsaw, Poland and the Soviet Union signed a 3-billion-ruble ($4.2-billion) agreement under which Polish shipyards--potentially one of the country’s leading sources of urgently needed hard currency--will be kept busy supplying the Soviet Union with 300 new vessels over the next five years, a 30% increase over the last five years.

“This will be very difficult for us,” a Polish source remarked. “But we come to the Soviets with empty hands in our negotiations. What else can we do?” Poland is to receive some ships and maritime equipment in return, but official reports have left the clear impression that the vast bulk of goods exchanged under the agreement will be going east.

As the Polish newspaper Zycie Warszawy observed some months earlier, “Nothing is as favorable for mutual cooperation . . . as brutal economic necessity.”

New Links of Dependence

In a series of deals they could apparently ill afford to refuse, Eastern Europeans are also contributing to major resource-development projects in the Soviet Union, a trend that in turn is forging new links of dependence on Moscow:

--Czechoslovakia, East Germany, Hungary and Romania are helping to build a huge new concentration plant for low-grade iron ore at Krivoy Rog in the southern Ukraine. It is to process 30 million tons of ore a year for the steel mills of Eastern Europe, which will then export part of their output back to the Soviet Union.

--Poland and other Eastern European countries are helping to build two major nuclear power complexes and long-distance transmission lines in the Ukraine from which they are to import electricity. Projects like these are increasingly tying Eastern Europe to the Soviet electric power grid.

--Romania, while struggling to slow the decline of its own oil and gas production in the midst of a severe economic austerity program, is nevertheless helping to develop a new gas field in the Kara-Kum desert of Turkmenistan in Soviet Central Asia, a project that involves building a new city to be called Sovietabad. Romania has not disclosed the size of its contribution in capital and labor.

--In the largest joint Soviet-East European project ever undertaken, construction is to begin next year on a new pipeline to carry between 20 billion and 22 billion cubic meters of natural gas 2,855 miles from the Yamburg region of northern Siberia to Eastern Europe.

Strategic Element

The new pipeline--to be called the Progress pipeline--is a key element in the Soviet strategy of substituting natural gas supplies, one of the few bright spots in its economy, for oil at home and to its foreign customers. Poland is to pay 20% of the 10-billion-ruble ($14-billion) cost of the pipeline, in effect an advance payment for future energy deliveries. The size of other Eastern European contributions is still not clear.

From sketchy official news reports of the project, it appears that Moscow’s partners will share neither ownership nor control of the pipeline. Their investments are to be paid back in natural gas starting in 1989-90, but once the pay-back period has ended, “they’ll just start paying their gas bills,” a Western diplomat noted. “It’s an interesting approach to partnership.”

In addition to these projects, Moscow is following through on a major objective of last year’s Comecon summit: the “coordination of the entire economic policy of the CMEA (Comecon) countries,” as Zycie Warszawy described it then.

New Five-Year Plan

The first effects of this effort are to appear next year, when the Soviet Union and its Warsaw Pact allies unveil new five-year economic plans in unison for 1986-90. Soviet officials at Comecon headquarters in Moscow were to have completed drawing up a list of “cooperation priorities” by June, but the process appears to have been delayed.

As an adjunct to closer coordination of economic plans, the Soviet Union in recent months has signed a series of 15- to 20-year agreements for cooperative research and development with its Eastern European allies. The agreements have been publicly presented as important steps toward modernizing the economies of the entire bloc. But a number of researchers fear that they will provide little new access to Soviet science and technology and will serve instead mainly as the framework for assigning East European research centers tasks of interest to Moscow.

The top priorities reflected in the agreements are said to be areas in which the Soviet Union feels particularly weak--microelectronics, computer software and genetic engineering, all of which have both civilian and military applications.

Bloc-Wide Agreement

Pravda said June 15 that there is an “urgent need” for this bloc-wide system of research agreements, which “must become the basis for . . . coordinated and, in some cases, unified scientific and technical policy.”

In yet another step that could eventually constrict Eastern Europe’s latitude in trade with the West, the Soviet Union in June called for the resumption of talks between Comecon and the European Economic Community on establishing direct bloc-to-bloc relations.

Western analysts, who regard the initiative as essentially political mischief aimed at irritating U.S.-European relations, expect little to come of the talks, which lapsed in 1980 after the Soviet invasion of Afghanistan.

Some Eastern Europeans, however, interpret the Soviet proposal as a signal that Moscow looks unfavorably on efforts by its allies--notably Hungary and Romania--to expand exports to the West by signing separate trade and tariff agreements with the Common Market.

Stance Could Help

To be sure, as Eastern European officials note, Moscow has no interest in impoverishing its allies. And the Soviet drive for closer integration of its trading bloc, and its harder bargain for natural resources, could have beneficial effects. It may provide the incentive that Eastern Europe has lacked so far to conserve energy, modernize industry and streamline the state management of national economies--if not to actually relax the stranglehold of central planning.

But the probable price is still-greater dependency on the Soviet Union. The underlying fear is that this will mean only a further erosion of national sovereignty and with it a greater degree of isolation from the West. To the nations of Eastern Europe--whose cultural ties for the most part have lain for a thousand years not with Russia to the east but with Western Europe--this would be a tragedy of historic dimension.