Infighting, Inexperience Could Stymie Economic Progress in Soviet Republics : Market reforms: Some call central coordination the key to success. Others say states must look out for themselves.
Although the Soviet republics have now agreed to let a new central committee try to coordinate the vast task of economic reform within their crumbling union, Western analysts say many crucial questions remain unresolved.
With the republics now freed from the yoke of rigid central planning, “the pace of economic reform will be accelerated substantially,” said David Johnson, an economist with the Washington consulting firm PlanEcon Inc. “The republics all along have been more progressive than the central government.”
Yet many economists say they fear that the republics, heady with their initial burst of freedom and unaccustomed to the mechanics of the free market, may go too far to separate themselves from each other.
Already, they note, the Ukraine is trying to withhold its beef exports from Russia, republics such as Armenia are talking about printing their own currencies, and all are leery of delegating much of their newly won independence back to a central bank.
In that sense, they are not unlike the 13 American colonies, which spent the first few years after the Revolutionary War waging economic battles with each other. That is why Article I of the U.S. Constitution gave Congress control over interstate commerce in the United States.
Although the republics clearly want to determine their own economic destinies, they agreed to a certain amount of central coordination as part of historic reforms approved Thursday by the Soviet Congress of People’s Deputies. The legislative body approved creation of an Inter-Republic Economic Committee, in which each republic has an equal voice, to try to provide some common direction to their diverging economies.
Still, Western analysts are apprehensive. With no experience in a free-market system, the leaders who are trying to build a new economic structure in the Soviet Union have “a real ignorance of the facts of economic life,” said World Bank economist John A. Holsen. “There’s just very little economic sophistication at the republican level.”
Holsen, who led a World Bank team in a study of the Soviet economy conducted last year by the primary Western economic institutions, says he is discouraged by what he has seen so far.
“The prospects weren’t terribly good before the coup, and I think they are worse now,” he said. “It’s going to be a long, slow process.”
At a minimum, he said, the republics must be willing to unite behind a common currency, a national budget, a strong central bank and a single set of trading rules that keeps commerce flowing freely among them.
But others are not so sure. If republics set up their own monetary systems, for example, they might feel they are under more pressure to keep their own budgetary houses in order.
“The key issue is whether a single money will provide a discipline on the governments, or whether it would be better to internalize the pressure so each republic will know that if they overspend, the chickens will come home to roost,” said John Williamson of the Institute for International Economics.
Virtually every analyst agrees that not much else can be accomplished until such questions have been sorted out. Until they know who is in charge, Western governments will remain loath to send much in the way of economic aid, and major private investment will shy away.
Indeed, the uncertainty over whether to deal with the center or the republics was a major stumbling block even before the coup. Particularly for big projects, “the problem over whose law prevails has killed any kind of investment,” said Allen Sherr, who heads the Soviet practice of the Boston law firm Hale & Dorr.
The old Soviet system assured, among other things, that the 15 Soviet republics could not get along without each other. When a lack of materials shut down the Soviet Union’s only cigarette filter tip factory last year, for instance the desperate smokers of a country with a collective 62-million-pack-a-day nicotine habit nearly rioted.
Such shortages were an inevitable byproduct of Soviet central planning, say the Western economists. Thanks to Moscow’s Stalinist view that big and monopolistic was better, more than one-third of all the country’s output had no more than one source of supply. Filter tips from a plant in Latvia were useless without the packaging that came from Armenia or the tobacco itself, processed at only a handful of plants in Russia and Central Asia. And all of it came together by means of a transportation network heavily subsidized by the central government.
If none of the republics is capable even of putting a cigarette together by itself, they face a far more daunting challenge in trying to build entire economies now that the center has all but vanished.
Many expect the former Soviet Baltic republics to lead the way, seizing the opportunity to undertake drastic economic reforms--and therefore, win Western aid--within the next few months.
But on an individual level, the republics have vastly different prospects of ever succeeding on their own.
Some--such as Russia, the Ukraine and Kazakhstan--are richly endowed with natural resources that leave them comparatively well positioned to lure foreign investment and earn hard currency. But the outlook for most of the other republics is “pretty dismal,” Johnson said.