NEWS ANALYSIS : Capitalist Leaders Doubt Gorbachev Knows Business

Despite President Mikhail S. Gorbachev’s commitment to move the Soviet Union to a free-market economy, the men who run the world’s most powerful capitalist countries doubt that, after seven decades of socialism, he knows how to do it.

But this week they offered to give him all the help they can in remaking his nation in the image of their countries--a move that both sides hope will transform not only the Soviet Union but the world economy as a whole with the incorporation of a country that potentially is one of the very richest.

The offer from the Group of Seven, the major industrialized democracies, was couched in promises of “close cooperation,” “practical advice” and “technical assistance,” but the proposal was really to allow committed capitalists to make over the first and largest of the world’s socialist economies.

The lure for Gorbachev, who still describes himself as a Communist dedicated to the “socialist choice,” is meant to be a program that really will pull the Soviet Union out of its profound economic crisis by replacing stagnant state ownership and central planning with the drive of private entrepreneurship and market forces.

There is also an implicit promise of future financial assistance to help underwrite the changes--but only when the major economic powers are sure that the money will not be squandered in holding together the rapidly disintegrating Soviet system.

“The Group of Seven offer was solicited, it was made and it was accepted,” a senior European official said Thursday after the economic summit here. “The Soviet Union has not surrendered its sovereignty, and Gorbachev reminded us of his political troubles, but there is a clear commitment by Gorbachev to fundamental change and by the Group of Seven to support for that change.”

As outlined by British Prime Minister John Major, the six-point proposal would thrust experts from the International Monetary Fund, the World Bank and other institutions as well as from Western governments and companies into the center of the Soviet reform program and into the reorganization of commerce and industry there.

“It is my impression that these people mean business,” Treasury Secretary Nicholas F. Brady said on Thursday of the Soviet leadership. “They understand that in order to move into the Western, market-based (institutions), they have to do certain things.

“Because they haven’t done them is not because they don’t want to,” Brady told reporters. “They genuinely do, but their level of understanding is not that sophisticated.”

Other Western officials were blunter. “Gorbachev is now convinced that only a market economy can save his country from a disaster that already is touching every family,” another European participant in the meeting with Gorbachev commented. “But nothing he said persuaded us that he knows what needs to go into making over his economy. . . .

“Our offer to him was born of this dilemma--a desire to help him, to promote perestroika (restructuring) , to promote the transformation of the Soviet Union, all of which is a truly historic task, but a certain knowledge that everything we did would be lost or even counterproductive if a workable program were not drafted and implemented first.”

David Roche, an economist at Morgan Stanley International, a London-based bank, commented Thursday: “Soviets have virtually no experience of a market and do not know how its institutions work. To them, the market is a bazaar, all chaos and noise and the contrary of everything they have known. . . .

“This is an effort to give them that expertise from the West, to get them out of the dead end of central planning and get them to the point when, as it is appropriate, funds can be advanced through international institutions to help mobilize their own resources and make the crucial steps into a market.”

The long-term objective is creation of a market-based economy with all the institutions, from stock exchanges and a modern banking system to tax laws and protection for foreign investors, required to make it run.

The Group of Seven, which includes Britain, Canada, France, Germany, Italy and Japan as well as the United States, accepted the sincerity of Gorbachev’s declaration that his country wants to move to a free-market economy and then undertook in what could prove to be a history-making move to supervise the transition.

“We have received a signal from the Seven, and we have started moving along,” Gorbachev said on Thursday as he continued his visit here. “This is something I welcome very much. . . . What we are doing now is laying down the bricks of the foundation for future cooperation.”

This was not the “Grand Bargain” as originally conceived by a group of Soviet and U.S. economists and political scientists last spring to use Western money and experience to promote basic political and economic reform in the Soviet Union, but it comes close.

“There’s enough that it is a beginning,” said Elizabeth Sherwood, a member of the joint working group that produced the plan at Harvard University last month. “It’s just what we had hoped for, which was a real process of engagement under way.”

Early help will be given for cost-effective energy generation, rapid distribution of food, conversion of military industries to civilian production, increased nuclear safety and more efficient transportation.

The Group of Seven leaders, responding to Gorbachev’s plea for increased trade, said they will work to open international markets to Soviet products and thus increase Moscow’s export earnings.

On Thursday, Britain became the first to offer more assistance--about $50 million for a “know-how” fund to develop small businesses in the Soviet Union and a special mission to Moscow to assess trade opportunities between small companies in the two countries.

Major, concluding an additional day of talks with Gorbachev, reiterated the West’s commitment to “a partnership in perestroika” and said he will send Norman Lamont, the British chancellor of the exchequer, to Moscow before the end of the month to continue the dialogue begun at the Group of Seven summit.

Yet, the lack of vast aid commitments--some Soviet and Western economists were speaking of as much as $15 billion to $20 billion annually for five or six years--disappointed some.

“More could have been accomplished,” Vitaly I. Churkin, the Soviet Foreign Ministry spokesman, said here. “President Gorbachev has a bigger vision.”

Nikolai Shmelov, one of the Soviet Union’s leading radical economists and an early proponent of seeking Western assistance, commented in Moscow, “Unfortunately, the leaders of the Western world, as all ordinary people, think in terms of decades, and now it is necessary to think in terms of months. I am afraid that the Western leaders did not understand the urgency of our problems.”

But Ruslan Khasbulatov, the acting chairman of the Russian Federation’s legislature and a respected reform economist, agreed with the Group of Seven approach.

“Just getting credits without even knowing what to use them for--that’s like pouring water into the sand of the Arabian desert,” he said.

The Soviet Union must first create the political and legal basis for a free-market economy, he said, and the country’s vast natural wealth would then draw investment. “We won’t need to ask for anything from anyone,” Khasbulatov said. “Businessmen will come on their own because they will have confidence.”

Times staff writer Karen Tumulty contributed to this story.

Six-Point Offer

The world’s seven leading industrialized democracies agreed to offer aid to the Soviet Union in six specific ways:

* Extend to Moscow “special association” with the International Monetary Fund and its sister agency, the World Bank.

* Urge all international organizations to “work together and intensify” efforts to extend to the Soviets “practical advice” and “know-how” for helping the country create a market economy and to attract foreign investment.

* Offer “technical assistance” to help the Soviets develop energy resources, convert defense industries to civilian use, improve food distribution and increase nuclear safety and transportation.

* Help the Soviet Union expand trade, not only with the West but with its former client states in Eastern Europe.

* Follow up Wednesday’s meeting by having the host of the Group Seven--British Prime Minister John Major this year and Chancellor Helmut Kohl of Germany in 1992--keep in “close touch” with Gorbachev. Major said he will visit Moscow before the year’s end.

* Encourage finance ministers and officials representing small businesses to go to the Soviet Union to met with their counterparts.