Gorbachev: Part Problem, Part Solution : Soviet economy: A key question is whether the country’s leader understands the necessary reforms and, if so, whether he favors moving in this direction?

It is clear that the Soviet economy is in deep trouble. It is less clear how much of the trouble represents real decline during Mikhail Gorbachev’s 65 months in office, and how much reflects instead the increased visibility and audibility of conditions that existed before. Glasnost has made this distinction more difficult to discern: What was previously suppressed or obscured is now displayed and widely disseminated.

In any event, whether conditions have deteriorated sharply or only moderately from already low levels, the Soviet economy is sorely troubled and the need for drastic reform is compelling. So why, over more than five years in power, has Gorbachev moved so fitfully and ineffectively toward genuine economic reform?

Several explanations are usually offered: 1) political opposition--the so-called “conservatives”--Yegor Ligachev, Ivan Polozkov and their associates in the military and the KGB--remain strong and influential, despite their setbacks at the recent 28th Party Congress; 2) resistance and inertia in the Communist Party and government bureaucracy; 3) fears of strikes and unrest in the wake of the unemployment and inflation that might accompany thorough-going reform; and 4) strong pressure to maintain centralized control in order to meet and resolve the many conflicting sectoral demands for scarce resources.

But there is another major reason as well: Gorbachev himself! Notwithstanding his brilliance as a political tactician and his remarkable adroitness in political innovation, a fundamental question exists as to whether Gorbachev understands the kind of systemic reform required to reverse the economy’s decline, and, if he does, whether he really favors moving in this direction?

To restructure the Soviet economy, as well as those of other “non-market economies,” depends on articulating, explaining, enacting and implementing a package of six mutually interacting sets of measures:

--Monetary reform, to ensure control of credit and the money supply;

--Fiscal reform, to assure budgetary balance and to limit monetization of the budget deficit if one arises;

--Price and wage reform, to link prices with costs and demand, and wages with productivity;

--Enterprise reform, privatization, and legal protection of property rights, to provide incentives to workers and management that will accelerate supply responses in accord with changes in relative market prices;

--A social security “safety net” for those who may become unemployed as restructuring proceeds; and

--Currency convertibility, to link the Soviet economy with the world economy and with competition in international markets.

These six components of systemic economic reform, which are prominent in the so-called Shatalin Plan endorsed yesterday in the parliament of the Russian Republic and given a word of approval by Gorbachev himself, are mutually supporting and interactive. Each is less likely to work effectively without the reciprocal support of the others. Hence, efforts to “liberalize” the Soviet economy by piecemeal steps are more likely to founder than to succeed. For example, price and wage reform without monetary reform and fiscal restraint, and without privatization and enterprise reform, will generate inflation rather than competition and efficient production. And all of these, without the “safety net” provided by a social-security system will create an anticipated fear of widespread unemployment. Finally, currency convertibility, to link the Soviet economy with international markets, depends on all of the foregoing measures if it is to work effectively.

Despite much press commentary to the contrary, Gorbachev has shown little inclination to pursue such a comprehensive package of reform measures, and his previous public pronouncements suggest limited understanding of its systemic nature. In the past, Gorbachev has repeatedly asserted, for example, that he has no intention “to switch the country to capitalism”; that he wants to create a “regulated market economy;” and that he wants to preserve and invigorate socialism, not to supplant it. These pronouncements have warranted some doubts as to his understanding of market systems or his intentions toward them.

To be sure, Gorbachev’s remarkable capacity to shift ground--and to do so with flair and conviction--should not be underestimated. He has amply demonstrated this qualities in the past. Gorbachev’s recent if belated endorsement of the Shatalin Plan suggests that another major shift in his position may impend.

Nevertheless, a healthy degree of some skepticism that comprehensive economic reform will be enacted and implemented during Gorbachev’s watch is still warranted. It is as appropriate to view Gorbachev as part of the problem, as it is to view him as the solution.