Next Step : Killing Off Soviet Socialism: A Look at the Plan and Its Creator : Economist Stanislav Shatalin’s vision would replace the present economic system, based on state ownership, with one that looks surprisingly like private enterprise. The political stakes are huge.

His thin figure is hunched, his face is wrinkled with worries, his words are half-swallowed, his manner that of a distracted professor. But Stanislav S. Shatalin commands attention when he speaks, for his is the vision that promises to reshape the Soviet Union.

“You are not right,” Shatalin boldly told Prime Minister Nikolai I. Ryzhkov during a September debate on economic reform. “What you say we must do, we must not. That course you have laid out we must not pursue. Here, in my opinion, is the way we should proceed. . . . “

And the Soviet Union, in a change so momentous that nothing here will remain the same, appears ready to follow Shatalin’s recommendations.

The Shatalin Program, as it has become known, is the controversial blueprint for the overhaul of the Soviet economy. It aims not at reforming the present system--built on state ownership, central planning and administrative management of the economy as a branch of the government--but at replacing it with private property, market forces and entrepreneurship.

Within a year and a half of its inception, the program envisions the privatization of 70% of industry, an even greater proportion of agriculture, virtually all of commerce and the whole service sector of the Soviet economy.

It provides, stage by stage, for the introduction of the market forces of supply and demand to bring growth where decades of central planning led to economic stagnation. Prices will be freed from state controls, state subsidies will be eliminated and true costs--some higher, others lower--will begin to govern.

Capital will come from investors, not the state; and unprofitable, uncompetitive enterprises will face closure. Workers will be able to negotiate their own salaries--and face dismissal if they do not earn them.

The changes go even further: A new political system, extending the democratization undertaken by President Mikhail S. Gorbachev over the last five years, will be needed to implement them.

But the fundamental transformation will come in the country’s social philosophy--an end to the collectivism that has ruled here for so long.

“Sooner or later, the time will come when we shall have to return to the basic fact that the greatest sovereignty is that possessed by a person, an individual person,” Shatalin said in an interview. “Any attempt to put us ahead of myself is flawed, essentially and fatally flawed. Its failure is preordained.

“Only by putting I in the first place can we hope to develop a normal we. This is an I that does not function at the expense of another I, and it is an I that finds strength and comfort in the alliance we know as we. But the I must come first.”

This is a philosophy that Shatalin’s opponents criticize as a negation of all Marxism-Leninism, the Soviet ideology for seven decades, and he acknowledged that, in fact, he shares much of the trenchant anti-socialist criticism of Friedrich A. von Hayek, the Austrian economist and social thinker who was awarded the Nobel Prize for Economics in 1974.

“People simply cannot continue to live as they do now in our country,” Shatalin explained. “It is not just that the conditions are bad, though they truly are, but people cannot live in such monstrous and unnatural forms, economically, politically, psychologically, morally, as we have created.

“Economically, we have been living in a world of crooked mirrors, and their distortions have spread to all spheres of our life. . . . Such is my conviction, such is my motivation.”

To those who fear--and they are not few here--that this means abandoning socialism, Shatalin replies: “It is perhaps a pity, but we never had socialism. Almost no one has, and depending on what is meant by socialism, probably no one will.”

To those who accuse him of leading the Soviet Union down the “road to capitalism,” a phrase that still conjures up cartoon images of sweatshops, big-bellied bankers and long lines of the unemployed, Shatalin cheerfully replies, “Maybe, but who wouldn’t prefer the quality of life enjoyed in America or Sweden or Italy or France?”

And to those who argue that his proposals will create millionaires, maybe even billionaires, and end the dream of total equality and classlessness by encouraging free enterprise based on private ownership, Shatalin answers, “If our program results in the appearance of millionaires, I will believe my life was not wasted.

“Frankly, I am not really interested in these arguments, these quibbles,” Shatalin said. “I am just interested in seeing my people living better, living normally, having decent clothes and cars, buying apartments, traveling to Europe and America if they want.

“If you call this capitalism, if you want to hang Shatalin for introducing this way of life, go ahead.”

In the “first country of socialism,” as the Soviet Union has long described itself, these would seem the views of a heretic, a free-thinker who has gone beyond the bounds of scholarly research and social criticism to advocate the demolition of the existing order.

But Shatalin, 56, is a member of the Presidential Council, the country’s highest policy-making body, and of the Communist Party’s Central Committee. He is a member of the august Soviet Academy of Sciences, the head of its economics section and an internationally respected specialist on economic modeling.

He had begun questioning Soviet orthodoxy early, largely as the result of his reading socialist critiques of Kremlin policy and his study of Western economic theory. Three times, party officials tried to expel him, but each time their superiors reversed the decision.

“I come from a family with deep party roots, where the party was everything and its ideology was sacred,” he said, noting that an uncle had served as a secretary of the party Central Committee and his father was a regional party official. “So when I began to challenge the unchallengeable, people asked, ‘How did a man from such a family go wobbly in the attic?’

“Well, now it has all ended up with me--a declared social democrat in the European sense--becoming a member of the Central Committee. I make no secret of my political philosophy--I am a social democrat.”

For Shatalin, that translates into an economic program that starts with “private ownership and all that this implies” and includes free enterprise, a strong program of social welfare and “a system of clever, progressive taxation” that protects the weaker strata of society without blunting initiative.

Although other economists drafted much of the “500-Day Plan,” as the reform program is also known from its ambitious timetable, it was Shatalin’s prestige and the force of his convictions that have won it growing acceptance.

The program has the support of Gorbachev and Boris N. Yeltsin, the president of the Russian Federation, the largest of the Soviet republics. It was adopted in principle last month by the Supreme Soviet, the country’s legislature, but then referred amid criticism to a commission headed by Gorbachev for possible amendment. The final version is due for presentation to the Supreme Soviet before Oct. 15.

The program would immediately impose a severe limit on government spending and on credits for Soviet enterprises, halting virtually every construction project now under way and cutting off funds to unprofitable enterprises.

Privatization is the program’s second stratagem, and it starts with housing, small businesses and farmland and proceeds to the transformation of major enterprises into employee- and shareholder-owned companies.

And, in a move that Shatalin regards as politically important and economically necessary, the country’s constituent republics would get sweeping powers to design their programs suited to their differing needs, enacting different tax, property and business laws. The republics would then form an economic union that would, in reality, become the basis for a decentralized, federal Soviet Union.

Despite Shatalin’s optimism on the program’s adoption, serious doubts remain on its implementation.

Where will the money come from for the privatization of 46,000 industrial and 760,000 commercial enterprises, whose book values now total 2.9 trillion rubles (roughly $4.7 trillion at official but inflated exchange rates)? Even depreciated by more than a third, this would still require an investment of about 1,400 rubles, or five months’ pay, by each worker.

Soviet savings are great, the result of the severe shortages of consumer goods over the years, but as Leonid I. Abalkin, the vice premier for economic policy and the principal critic of the Shatalin program, noted, “A man who wants to buy a refrigerator, and cannot, does not necessarily want to buy shares in a refrigerator plant instead.”

Even farmers, who because of the present food shortages would appear to be in a win-win situation whatever happens, may well prove reluctant to take over land now cultivated collectively if it entails any risk.

Doubts have also been voiced about the government’s ability to eliminate its budget deficit, now thought to be as much as $240 billion at official exchange rates, within a year--even with cuts of up to 20% in military spending.

If the government did succeed, some liberal economists are arguing, the action would probably force the whole economy into such a serious recession that it would not have sufficient momentum to carry out the rest of the reforms.

Other critics see massive unemployment--as much as 30 million workers, up from about 8 million at present--and inflation that could run 15% a month, not the present 15% annually.

Even Roy A. Medvedev, a longtime dissident historian, who now sits in both the Supreme Soviet and the Communist Party Central Committee, warned that privatization, while the linchpin of the whole program, is perhaps its weakest element.

“This is a bolder and more radical plan than we have ever considered, and in that lies its hope of success,” Medvedev said. “But it also contains so many risky elements that if one of them fails to work, the plan itself will fall apart.”

The 500 Days: Russia’s New Revolution

A breakdown of the 500-day “Shatalin Plan,” as described in the most recently published version. The plan was originally to start Oct. 1, but the earliest start date is now Nov. 1.

FIRST 100 DAYS

Partial privatization of housing, land and industry.

Legislation protecting all property holders, Soviet and foreign.

Repeal of laws making it a crime to buy goods and sell at a profit.

Sharp reductions, between 10% and 20%, in the military and state security budgets.

Elimination of state subsidies for money-losing industrial and agricultural enterprises.

Within 30 days, establishment of a unified exchange rate for the ruble in all foreign trade. Use of other currencies in the Soviet Union will be prohibited.

DAYS 101 TO 250

Prices freed from state control except for a maximum of 150 basic items, which range from oil, gas and steel to bread, meat, milk and sugar to medicines and school textbooks.

Elimination of state’s budget deficit, estimated to be as much as the equivalent of $240 billion at official exchange rates.

Stabilization of the consumer market.

Indexation of pay, pensions and state welfare allowances to protect low-income groups.

A cutback in industrial production.

Development of 1,000 to 1,500 large industrial companies as stronger enterprises buy out the weaker.

DAYS 251 TO 400

Privatization of 30% to 40% of industrial capacity, 50% of construction and transportation, 60% of retail and wholesale trade.

Liquidation of the government’s administrative system for economic management.

Anti-trust legislation to prevent development of monopolies.

Further recession in industry as production declines and weaker enterprises go out of business.

Development of a private housing market.

The ruble becomes freely convertible into hard currencies through auctions of foreign exchange.

DAYS 401 TO 500

The period opens on the basis of a stable fiscal system, sound budget and realistic prices.

Privatization will grow to 70% of industry, 80%-90% of construction and transport and all of trade and the service sector.

Foreign capital is admitted to the domestic market; customs tariffs will be used to protect domestic producers.

An end to the special system of residence permits controlling worker mobility to develop a labor market.

Lifting of financial restrictions, easier access to capital markets and to bank credits, lower taxes.