Baltic States Want to Free Economies

Determined to lift the dead hand of Soviet central planning from their economies, the Baltic republics of Estonia, Latvia and Lithuania are preparing to declare their “independence” from Moscow.

Broadening President Mikhail S. Gorbachev’s political and economic reforms, they plan to assert ownership of their natural resources, to take over most of the factories and enterprises now operated from Moscow and to free their economies from rigid government control.

The moves in the Baltic republics, planned for next year, are likely to constitute a major step toward “market socialism”--a mixed economy of competitive state, cooperative and private businesses in which the economic forces of supply and demand and measures involving such things as taxes and interest rates replace state planning and central management.

Gorbachev’s nationwide economic decentralization falls short of what many in the Baltic Republics want. These people speak of complete control of all industry, their own currency and banking system, local rather than central collection of taxes, and much greater reliance on market forces.

“We are talking of our economic independence, but Moscow is talking only of autonomy,” Prof. Kazimiera-Danute Prunskiene, rector of the Lithuanian Institute of Advanced Management Training and one of the authors of what has become known as the “Baltic plan,” said in an interview here. “We want to lay the foundation of a new economic system, and they seem still to be trying to find ways to make the old one work.”

One reason for the central government’s caution is the very impatience of nationalists in Lithuania and the other Soviet republics, where critical political, economic and social problems are attributed both to the Soviet system and the Russian-dominated central government.

Delicate Balance

“Everyone wants great haste. Everyone wants decisive breakthroughs,” Algirdas Brazauskas, first secretary of the Lithuanian Communist Party, told an interviewer. “Everyone thinks that in making these changes we can move as fast as a person might around his own house, that we are rearranging the furniture, so to speak, in working out quite fundamental changes.

“But the balance in the Baltics, and in the Soviet Union as a whole, is rather delicate at this moment, and we must take care that we make real progress and do not sacrifice real gains for speed.”

The planned changes will begin shifting the Soviet Union politically toward a more federal system of government, giving the country’s constituent republics and its larger regions broad new powers they say they need to promote economic development and solve such urgent problems as shortages of food, consumer goods and housing.

Further moves toward what Gorbachev has said would be a system based on “a strong center and strong republics” are expected after a special Communist Party Central Committee meeting this summer to discuss rising nationalism and ethnic tensions around the country.

“We see the Soviet Union as a federation,” Brazauskas said, “based on a social contract in which we as a sovereign state delegate certain powers to the central government--for example, defense, foreign affairs and some big economic projects that are of interest to us. This cannot be called complete sovereignty as defined in law, but it will have real content and not remain the words of an empty declaration.”

The Baltic republics’ immediate focus is gaining control over their own economies, believing that much of the discontent here now stems from slow growth and the severe shortages of consumer goods that result.

Makes Problems Worse

Antanas Mercaitis, deputy chairman of the Lithuanian State Planning Commission, said in an interview: “Our dilemma is . . . very simple, very straightforward: Our present system for managing the economy cannot solve our problems, and we can see that it only makes them worse. In analyzing these problems and our inability to solve them, the idea arose that we could do a better job managing things ourselves.

“However, developing a system to replace what we now have is a very, very complex undertaking. We do not believe that our economy can develop when managed from the center, but we know that it is tied very strongly to the economy of the whole country, both in terms of resources for our industries and markets for our goods. What we need to do is restructure the whole economic relationship between us and the center, between enterprises and the state and between producers and consumers. And if we are going to work better, then we must be able to retain more of what we produce.”

The initial scope of the Baltic plan can be seen in proposed Estonian legislation, recently published for discussion, that strikes many observers in Moscow as too radical to win the central government’s immediate approval.

Under the proposed laws, some of which conflict with present Soviet legislation, Estonia would return all the land now held by state and collective farms to the farmers themselves, and it would legalize “small-scale” private enterprises and allow them to hire employees and build their capital for reinvestment. The draft laws would also restrict immigration to Estonia from other parts of the Soviet Union and prohibit the sale of certain scarce commodities, notably food and other consumer goods, to non-residents.

Although Lithuania is still drafting its legislation, Mercaitis says economists here share much of the thinking of the Estonians, but his arguments are largely economic, not political, and result from the much-criticized flaws of the whole Soviet economic system.

Inefficient System

Because most of Lithuania’s large enterprises are responsible only to central ministries, he said, their managers have little incentive to increase or improve their products, to economize on the resources used, to reduce pollution or to contribute to the republic’s development.

Because of the complex Soviet system of central planning, government-allocated resources and state orders, Lithuania finds itself producing goods--metal castings, for example--for other areas of the Soviet Union but then importing virtually the same items.

“There are a lot of things we could rationalize almost immediately, but we have lacked the authority up until now,” Mercaitis said. “We have been bound hand and foot by Moscow.”

Questions that could be decided locally, even at the factory level, must go to Moscow, not only wasting time but resulting in endless complications.

“Someone will make a decision that perhaps is right for a factory in central Russia but not at all appropriate for us,” Mercaitis said. “Yet we have been powerless to change it.”

These economic questions have important political implications, particularly in the Baltic republics, which were independent between the two world wars.

“Sovereignty is not a remote concept for us, but something whose absence we feel very much in our daily lives,” Prof. Prunskiene said, outlining the position of the Lithuanian Reform Movement, a broad popular front known here as Sajudis, on the need for “economic independence.” “This first step will not resolve our problems. We will have to keep pushing Moscow for our economic freedom.”

The Sajudis view, Prunskiene said, is “not that the center delegates powers to us and is allowing us to manage our economy, but vice versa--that the republic yields some of its functions, sovereign functions, to the central government and provides some financing for its operation.”

Greater Control

Under the decentralization plan adopted recently for the whole country, the Soviet Union’s 15 constituent republics would be given control of agriculture, light and local industries, construction, local transportation and the supporting industrial infrastructure, such as regional power grids. The central ministries in Moscow would continue to run heavy industries, notably metallurgical, chemical and machine tool enterprises.

Yuri D. Maslyukov, chairman of the Soviet State Planning Committee and an alternate member of the party’s Politburo, told journalists in Moscow that this would give the republics control of at least 50% of the industrial production in their territory and perhaps as much as 75%.

Lithuania, which now controls about 11% of its industrial production, expects that figure to rise to about 70% by the end of next year. But critics say the actual ratio of industrial production brought under local control is only about 33% if a republic’s own enterprises are excluded.

“As the market mechanism develops in the country, as economic reforms go further, as the tax system evolves, we can go further,” Maslyukov said, acknowledging the criticism that the measures fall well short of breaking up the country’s long-standing industrial monopolies and the bureaucracy that runs them. “To do more now, however, would not encourage the development of an integrated economy.”

But the republics are getting other important powers--full control over the natural resources on their territory, including water, and the right to impose user charges on these resources, to control employment of workers and to levy limited taxes on centrally managed enterprises. They will also get the right to set and enforce environmental standards. And they will have the authority to set their own social policies, such as the size of pensions.

Restricted Evolution

Although these are largely constraints, responding to widespread criticism of the central ministries’ misuse of natural resources and their disregard for local concerns, other officials say there is enough flexibility for some republics to use them to encourage development of certain types of industry--and to prevent expansion, or even force reduction, perhaps closure, of other types.

Stepan Sitaryan, the first deputy chairman of the planning committee, said slow progress on other economic reforms, particularly on the outmoded pricing system and tax structure, made further evolution of power impossible. The government, he said, also wanted to ensure that as enterprises were “freed from the diktat of the central ministries, they took charge of their own affairs and did not fall under the diktat of local authorities.”

But Mercaitis said that what Lithuania and the other Baltic republics want is enterprises no longer subordinated to any ministry but run by their own managers, responding to market forces and regulated by laws and taxes.

“We want to free our economy from Moscow and to build up a new system that responds to our needs,” Mercaitis said. “We need a different kind of management, a different kind of planning, and most of all a different driving force.

“What we are really looking for is a fundamental reform of the whole Soviet economic and political system, because we recognize that solving Lithuania’s problems cannot be done in isolation from the rest of the country. If we achieved our goals only in little Lithuania, then immense problems would result.”

Lithuania recognizes, as do the other Baltic republics, that it is tied to the whole Soviet economy, Mercaitis said, and is seeking to improve its “terms of trade” with the rest of the country--the effective price it pays in dairy products, meat and consumer goods for what it receives in raw materials--and not to secede into autarky.

“We are poor in natural resources and have to depend on Russia for them, particularly for oil and gas,” he said, “and we know our principal market will always be Russia, even when our products are better able to compete internationally. So we envision our economic independence within the context of the Soviet Union, but we envision a much different Soviet Union, one based on the principle of federalism.”