‘People Are at the Limit of Their Patience’ : Soviet Union: Adoption of Yeltsin’s ‘500 Days’ plan is the last hope for avoiding massive economic dislocation and resulting civil disorder.

As George Bush and Mikhail S. Gorbachev meet in Helsinki today to discuss the crisis in the Middle East, Gorbachev has a crisis of his own to contend with. Since the last summit he has not only suffered a dramatic loss of power, but the Soviet economy is now poised on the verge of collapse. Furthermore, social unrest has expanded beyond the realm of ethnic disputes to include the rank-and-file masses.

Indications that Gorbachev finally understands the urgency of the situation is borne out in his “agreement in principle” to support Boris Yeltsin’s “500 Days” plan, to move the Soviet economy decisively to a market-oriented system. The program will include measures to tighten the money supply; institute private property and land; create monetary instruments such as stocks and bonds; establish the first decentralized banking system; reduce foreign aid by 75%, and sell foreign debt on the international market--including Iraqi debt, which could amount to multibillions. The comprehensive program is to be implemented starting Oct. 1.

Adoption of such a plan throughout the Soviet Union--even if it takes more than 500 days--is the last hope for avoiding massive economic dislocation and resulting civil disorder.

Gorbachev’s past indecisiveness has taken its toll. While many in the West were expressing sympathy for his political balancing act, in fact Gorbachev and the Ryzhkov government spent too much time on politics and not enough on the factors that have now led to this critical juncture. In effect, both Gorbachev and Prime Minister Nikolai I. Ryzhkov have been overtaken by events. The result, in Yeltsin’s words, is that “the people are at the limit of their patience.”

The question now is: Will a strong dose of medicine revive the dying patient, or is it already too late?

Because the situation is now so critical, Yeltsin’s plan--the most radical and promising approach yet proposed--faces a number of serious challenges. Here are just a few that threaten to undermine the long-overdue program.

* Breakdown of the consumer market. Economic indicators in July of this year demonstrated that production has dropped 5%-10% since January. Combined with a skyrocketing budgetary deficit--which is being met by printing money--the combination of scare goods and too much money in circulation has completely destabilized the supply-and-demand balance. With significant amounts of money in the hands of the people, everything that is put on the shop shelves is snapped up, creating further shortages.

This feeds into a vicious cycle that threatens the restoration of production. Consumers, unable to find even basic necessities, spend more and more time during working hours in search of scarce commodities. Between this development and strikes caused by industrial disputes, ethnic disturbances and consumer protests--as we saw with the tobacco rebellion this summer--it is unlikely that production will stabilize any time soon.

* The apparent failure to bring in the harvest. For decades, workers from across the industrial and professional spectrum have been sent, in August and September, to collective farms to help bring in the harvest. This year, under pressure from professional operations, the government announced that non-agricultural enterprises no longer had to “donate” sizable numbers of workers for the harvest.

Despite the government’s well-intentioned decree, it did not take into account the effect that elimination of this hidden subsidy would have on the collective farms, especially during the harvest period. In what has been acknowledged as the best crop in 15 years, collective farms were not able to replace the “volunteer” help. The harvest was doomed before it began.

When the government finally understood the situation, the prime minister himself appealed directly to the public to leave the city and assist the collective farms. Within weeks it became clear that the call would be largely ignored. The government had failed to calculate that such appeals, even coercive ones, no longer work as a driving force in the Soviet Union. At the same time, however, market incentives were not yet in place.

Between gasoline shortages on the farms, a breakdown in the already faltering distribution system and a reduced work force, figures posted at the end of the month indicate that the harvest of this year’s bumper crop is now trailing behind what was achieved by last year’s mediocre one.

* T he hard-currency crunch. If the harvest is a poor one, it will necessitate grain purchases abroad, particularly from the United States. This, in turn, will create dangerous pressure on what is already a perilously short supply of hard currency. That and the reported shortages of bread and grain products already prompt concern by many that there will be large-scale hunger in the Soviet Union this winter.

Hard currency earnings--primarily from sales of oil and gas as well as from arms sales to clients in the Middle East and elsewhere--have been badly managed. For the first time in Soviet history, the government has been unable to meet its debts to foreign suppliers. The currency crisis is being felt all the way down to the grass-roots level.

For instance, three years ago the city of Moscow received $200 million from the central government to buy goods in the West, some of which are essential for running the city and providing social services. This year, after two years of declining revenues, the central government notified the city that no hard currency would be allocated to the nation’s capital.

The City Council, in desperation, is considering various schemes to raise hard currency, many of which are likely to be counterproductive. But no matter how much comes in from those sources, in the short term it will not be enough to meet the needs of even essential services. This could become particularly critical at a time when considerable unemployment is expected, as a result of economic restructuring.

* The unfolding power struggle. When Yeltsin declared sovereignty for the Republic of Russia, he forced consideration of a badly needed review of the Kremlin’s relationship with the union’s republics. Such a move may have saved a devastating showdown over the Baltic republics, but it also had an unexpected side effect.

Wholesale declarations of sovereignty have been issued not only from the union republics, but also from smaller political units--from ethnic autonomous formations down to district soviets.

We recently visited Kazan, the ancient Tatar capital on the Volga River, conquered by Ivan the Terrible in the 16th Century. We were told that the Tatar Autonomous Republic’s new declaration of sovereignty from Russia is not simply an expression of deep-rooted nationalism. Ominously, the declaration, decreeing supremacy of Tatar laws over Russian ones, has been prompted by a coalition of nationalists and “old thinking” apparatchiks.

The bureaucrats, afraid of Yeltsin’s radical reforms, have declared the territory they rule “sovereign” and are seeking union status--assuring them equality with the current 15 republics, including Russia. In this way, the apparatchiks will be able to maintain their decades-long grip on power, under the more conservative umbrella of the central government rather than the radical Russian leadership.

Even neighborhoods have been declaring their legal independence from the city councils that oversee them. And the councils, hoping to sell property or even land under the terms of the new economic reform program, are finding that control over those assets has become a source of dispute. This is already a big issue, particularly in the largest cities like Moscow and Leningrad.

With disagreement between Russia and the central government over which has control of Russia’s natural resources, it is clear that, from top down, the unfolding power struggles will sharply hamper decision-making and implementation of the new economic reform package. For the foreseeable future there will be no agreed-upon lines of authority. Even Yeltsin agrees that the “diversity of motives” is so great that a union treaty is some way off.

And without resolution with respect to the lines of authority, it is hard to imagine how even the most enlightened program of reform could be successful.

So what should the role of the West be in such a tumultuous period? During an extended stay in the Soviet Union this summer, we asked almost 30 Soviets, mostly Russians, from a wide range of backgrounds and professional pursuits (including government officials), to tell us what if anything the West should do to “help.”

Unanimously they agreed that direct aid or more loans to the Soviet Union, at this stage, would be a mistake for the West. But for the Soviet Union? Foreign aid or additional loans, they said, would be at best premature. In this period of transition, they worried, the money would undoubtedly be sucked into a black hole.

“The old system is on the verge of collapse,” one colleague warned. “A new one has not yet materialized. If you give us loans now, the ‘bad guys’ will squander it, leaving the ‘good guys,’ under the new system, to pay back the debts they ran up. Don’t help us postpone the inevitable day. Save your money for time when conditions are attractive enough for capital investment.” The phoenix, it was pointed out, does not shed its skin; it rises from the ashes.

It should be noted, however, that everyone we spoke to stressed the dire and immediate need for technical assistance. From Yeltsin’s government to Moscow’s City Council, there is an unprecedented desire for Western assistance to advise these governments on how to set up institutions that will be able to manage a new system.

With news of worsening conditions in the Soviet Union hitting our press daily, Western powers are going to have to monitor the situation there very closely. We believe that the West should be prepared, if necessary, to provide foodstuffs and other temporary humanitarian relief.

But for now--as both good short-term and long-term policy--the West should step up both philanthropic and governmental assistance for vital exchanges of technical assistance. Even corporations not doing business in the Soviet Union should look to making a contribution to the technical and intellectual level of competence there--not only for the long-term interests of the Soviet Union, but for the interests of the international community as well.

With the Yeltsin plan coming on line, the West should also look carefully to see where opportunities exist for private capital investment. With privatization in Russia and other union republics, private capital could play an important role in the modernization of the Soviet Union’s infrastructure.

Yeltsin’s plan is the greatest hope we have that Russia, and perhaps all the Soviet Union, will rebuild the devastation wrought by more than 70 years of centralized, authoritarian rule.

If it is not successful, we will have more than the Middle East to consider as a crisis of global proportions.