Salvation for the Soviets Lies in East, Not West : Economy: The Chinese example and Japanese funding would really bea grand bargain.

If Mikhail Gorbachev and Boris Yeltsin really wish to transform the Soviet economy, they should be sending their advisers and experts on study tours to China, not the United States. And if they are looking for the funds needed to finance the transition to market viability, then they should do a grand bargain with Tokyo, not Washington. The only real cost would be to national pride. Soviet leaders, who see no humiliation in being patronized by George Bush or John Major, are frightened of seeming to defer to Asians.

Gorbachev has withdrawn from the whole of Eastern Europe and given the West a free hand in the Persian Gulf but draws the line at handing back the Kurile Islands to Japan. The Japanese government has made it clear that Moscow could have anything it wanted in return for the Kuriles. Perhaps Gorbachev would like to make a deal but finds movement blocked by both radicals and conservatives, by both Yeltsin and the generals. Yet, in any rational calculus it makes no sense to poison relations with Japan for the sake of islands of no economic value and vanishing military significance. Any deal on the islands could be accompanied by guarantees that they be demilitarized and that Soviet access to the Pacific be unaffected.

However, even large credits from Japan could not resuscitate the Soviet economy unless accompanied by vigorous internal reform. Here the Chinese experience is of direct relevance to Soviet problems. Because of Tian An Men Square there has been an understandable reluctance to celebrate China’s remarkable economic achievements. The Chinese economy has been one of the most rapidly growing in Asia for well over a decade, with an annual growth rate of more than 10%.

Chinese consumers now have a choice of foodstuffs that would make a Muscovite’s mouth water; they can also buy refrigerators, fans, bicycles and many other light industrial goods that are in short supply in the Soviet Union.

Even more significant is the fact that Chinese light industrial goods and textiles are now carving out a growing share of markets abroad--industrial exports have been rising more rapidly than those of South Korea or Taiwan. The really dynamic sector of the Chinese economy is locally owned rural industry, not the large factories controlled by the Beijing ministries, which are as inefficient as their Soviet counterparts.

If the Soviet economy is to be revived, it is far more likely to be done by encouraging autonomous municipal and republican collective enterprise on the Chinese model, rather than by the ruinous dogmas of Chicago economics.

China’s rural industries are not, for the most part, privately owned. While they enjoy great operational autonomy, they are owned and regulated by local authorities and labor collectives. Surveys suggest that most employees in the Soviet Union do feel that they should have a stake in their enterprises and will not accept a transfer of control from Moscow to a foreign investor or local Mafioso--the latter being the probable end result of privatization.

It might be objected that China’s economic success is indissolubly linked to the type of ugly repression seen in Beijing in 1989. But this is not so. The advance of the new collective sector was itself the product of the relative liberalization of the pre-1989 period. It is concentrated in southern China, far from the control of the Beijing ministries. It furnishes better jobs than those available either in the large centrally controlled factories or in agriculture. This means that it does not require military-style policing and that it encourages upgrading and mechanization elsewhere in the economy.

The Soviet Union’s democratic revolution will surely be destroyed by continuing economic failure. What the Soviet people are looking for is real results, not new doctrinaire experiments. They would like to see economic structures that release initiative and give them the resources and independence they need to tackle their own problems. They would be foolish to allow false friends in the West to cut them off from potential allies, and relevant experience, in the East.

In the difficult days of last winter the Chinese government extended to the Soviets a generous credit for $1 billion of light industrial goods. Today, China is struggling with the devastation wrought by terrible floods. If Moscow sent heavy-duty trucks, earth-moving equipment and other critical supplies, this could be more than a timely humanitarian act--it could promote a partnership between states and peoples who have much to learn from one another.