Many New Policies Headed Back to the Drawing Board : Soviet Reforms Unlikely to Bring Swift Economic Growth

With the Kremlin loosening its grip a bit on key industrial ministries, would-be private shopkeepers and thousands of government-controlled farms, 1987 is the Year of Reform for the Soviet economy.

Western analysts say that Soviet industries will be hard put to better last year’s estimated growth of 4.3%, and Soviet foreign trade is unlikely to improve much above its near record-low 1986 performance.

Despite the potential for growth envisaged in the new reforms--the broadest range of entrepreneurial opportunities offered here since the New Economic Policy of the 1920s--several factors are likely to contribute to a break in the pace of Soviet economic expansion this year.

And the new reforms probably will not produce significant growth gains in 1987 for various reasons.

Some reforms are simply unlikely to catch on quickly, some are contradictory in purpose, and others must go back to the drawing board. For example, a new proposal to allow joint business ventures between Soviet enterprises and Western companies needs at least another year of tinkering before Western businessmen are going to risk wide-scale investment, according to Western analysts who have reviewed it.

Weak Dollar’s Effect

Many Western economists expect the weak U.S. dollar and soft crude oil prices to put nearly as much strain on Soviet export potential as they did in 1986.

According to figures released for the first nine months of last year, the value of Soviet foreign trade with the West fell by 35%. The biggest reason: the low price of oil, which accounted for 55% of Soviet hard currency earnings last year.

Because much of Soviet crude was sold in the summer months at the rock-bottom prices of $8 to $10 a barrel, 1986 may be the year of near-record low oil revenue for Moscow.

With expected increases in overall oil prices, 1987 may offer some relief, but most Western economists predict that it will be limited. Even if oil rises to $18 to $20 a barrel, the exchange rate for the dollar--the currency of oil sales--is expected to remain low.

Already, the Soviet Union has admitted that economic strains have forced a cutback in the purchase of some goods available only for hard currency, such as coffee.

Soviet and Western economists expect the lingering consequences of last April’s Chernobyl nuclear accident to pinch the Soviet economy and energy supply this year, too.

Electric Grid Ailing

With two of the four nuclear power reactors at the Chernobyl station still inoperative, the Soviet electricity supply grid is functioning below capacity. Soviet leader Mikhail S. Gorbachev has admitted that overall Chernobyl costs ran much higher than the original $2.8-billion cleanup cost estimate.

The extent of the strain it will cause this year depends on how quickly Moscow is able to bring a raft of planned new reactors on line and how efficiently it can keep up its levels of performance on older reactors.

If low oil prices and the weak dollar were heavy drags in the Soviet economy in 1986, one Moscow-based Western economist said in an interview, “it will be the domestic energy situation in 1987.”

Two of the new domestic economy reforms may produce results positive enough to offset negative trends in the Soviet economy, in the view of Soviet and Western economic experts in Moscow.

One is a scheme that in the new year introduced economic self-financing to several industrial enterprises and to five key industrial ministries, including the powerful Ministry of Chemical and Petroleum Machine Building.

Pilot experiments that have removed Soviet enterprises from central financing have yielded some surprisingly strong output results, and followers of the Gorbachev economic reforms are closely watching the new self-management schemes for successes in 1987.

The other possible economic success story this year is the various reforms to boost agricultural production, including a ruling that allows state farms to sell 30% of their planned production directly to the market, skipping intermediate handlers. Another is a more general directive to make the state farms more profit-oriented.

Little Direct Selling

The agricultural reforms were introduced last year, but the thousands of farms affected have yet to respond at their full potential. At most, according to Western estimates, the state farms sold 2% of their produce directly to the market in 1986.

It is anticipated that a greater percentage of farm goods will be traded through such channels in 1987 as the market adjusts to this relatively new form of sales. If it does, the mid- to long-term result could be significant output increases in Soviet agricultural production, which often runs into shortages.

The nationwide campaign for discipline in the workplace, with its crackdown against alcoholism, also is widely considered a boon for the Soviet economy.

With the new Soviet leadership still making a public impact, the ongoing campaign is expected to continue to reap some gains. But the effects of some other reforms introduced by the new Soviet leadership are likely to be much more limited.

The year should witness a stagnation in industrial plant investments, for instance, at a time when the overhaul of some Soviet industrial facilities should be reaching its peak.

The 1986-90 five-year plan has been billed as a period of heavy investment in the industrial sector, but Gorbachev signaled that brainstorming on where to concentrate such investments is likely to continue up to two more years.

Illegal Money Earning

A law passed last summer cracking down on illegal money earning sent a shiver down the spines of Soviets who drive gypsy taxis or moonlight as plumbers or in other jobs “on the left” black market.

But in late November, a special law was passed encouraging private businesses, such as family-run shops or cafes--or even gypsy taxis--as long as they are registered and taxable by the government.

While the two laws were meant to curtail illegal private initiatives and legalize genuine ones, the effect on Soviet citizens has been so confusing that the result is likely to be a decrease in private business initiatives, at least in the short term.

The drive to reduce the size of Soviet bureaucracies also is continuing, but the bureaucracies are fighting back--with foot-dragging and an apparently effective quiet resistance--pitting the Soviet reformists against rank-and-file workers in Soviet ministries.

In this year of reform, so many untested experiments are at work in the Soviet economy that a fluid situation is inevitable.

The conventional wisdom is that positive trends should keep the industrial rate above 4%, which is higher than the 3.6% average of the first half of the 1980s but well below the rates Soviet economic planners anticipate for the end of the decade.