Captialist Revolution In The U.S.S.R. -- Gorbachev's Risky Move To Free Market Rejects Communism

MOSCOW - In midsummer, Mikhail Gorbachev approached one of the leading economists in his cabinet, Stanislav Shatalin, and asked him to head a committee that would draft a program designed to create the basic institutions of a free-enterprise system.

Shatalin, who had been thrown out of the Communist Party three times during the Brezhnev era for various heresies against the tenets of Bolshevik economics, was a man wearied by years of false hopes. ``Look,'' he told the Soviet president, ``is this just another matter of `improving socialism' or creating a `controlled market'? Because if it is, I'm a sick man and I don't have time left for such follies. But if you are serious now, I'm ready.''

Gorbachev's decision Tuesday to endorse Shatalin's ``500 Days'' program marks a historic rejection of Soviet orthodoxy and a move toward the models of Western economic life. Until now, Gorbachev admitted, ``our brains just could not handle this idea of a market.'' The decision, perhaps the most critical and dangerous of Gorbachev's five years in power, was a complicated mix of innovation and circumstance, of intellectual development and political pressure.

In his economic thinking, Gorbachev has gone from decades of working within the Stalinist system of centralized planning and collective farming to supporting a reform plan that calls for the privatization of nearly two-thirds of Soviet industry by 1992, the rise of commercial banking, a stock market and farms owned by farmers. And more: a rapid sell-off of state properties and deep cuts in the budgets of the KGB security service, the Defense Ministry and in foreign aid.

Gorbachev's abandonment of Marxist-Leninist conventions in favor of a reform based on the experience of the West is reflected vividly in his new reliance on Shatalin.

In the coming weeks, members of the Supreme Soviet will debate and try to understand the ``500 Days'' program and make it their own. The Russian republic's legislature already has approved the Shatalin plan, and Gorbachev said Wednesday the proposal now has been submitted to the 14 other republics for review.

In the summer of 1948, Gorbachev won the Order of the Red Banner in the southern Russian village of Privolnoye for his prowess with a harvester in the wheat fields of the local collective farm. This summer, Gorbachev returned to his village scorning the old collectivist virtues, an advocate of free enterprise.

Gorbachev's road to his change of mind was gradual. He was never a closet free-marketeer.

Yet, Gorbachev's unique capacity as a Soviet politician has been his willingness to learn and to reject what now are viewed widely as the illusions of his predecessors. Between 1982 and 1985, with Yuri Andropov and Konstantin Chernenko in power, Gorbachev was nominally in charge of the entire Soviet economy. He called on many reform-minded economists to help him think through domestic policy.

``Gorbachev realized we had been approaching the limits beyond which civilization could not survive,'' said Yevgeny Primakov, a member of the president's cabinet. ``He began developing his ideas when he came to Moscow and brought them to the fore when he took power.''

In 1984, Gorbachev ordered a team of reform-minded academics working in Novosibirsk, led by Tatyana Zaslavskaya and Abel Agenbegyan, to write a report on the realities of economic life. The report, a stunning portrait of the U.S.S.R.'s collapsing system, was instructive for Gorbachev but won Zaslavskaya a reprimand from local Communist officials when it was published abroad.

At a Central Committee meeting in December 1984, Gorbachev spoke of the need for ``revolutionary decisions'' and ``perestroika (restructuring) of economic management.'' He spoke in favor of competition, democratization and glasnost, or openness.

Still, Gorbachev, for all his political guile, had no intention then of abandoning socialism or a centralized economy. He intended to make socialism effective, somehow. Gorbachev's reform began with a singular model: Lenin's New Economic Policy of the 1920s, which provided a brief period of limited market relations in the Soviet state.

The idea of a ``socialist market'' was revolutionary in Moscow - except to some independent-minded economists, such as Vassily Selyunin. ``Combining centralized planning and a market is the same as fixing a watch with parts of an hourglass,'' Selyunin wrote.

Compared to his shifts in foreign policy, Gorbachev's economic reforms during his first five years in power were hesitant and at times disastrous - as in the case of a failed anti-alcohol campaign.

The economic reform, such as it was, was going nowhere. People's expectations could not match the promises of the bold perestroika slogans. Black-marketeers seemed to thrive. The old system was collapsing and there was little new to fill the gap. Boris Yeltsin, now president of the Russian republic, and others outside the Kremlin leadership accused Gorbachev of taking ``half-measures.''

Gorbachev appointed Shatalin to his cabinet in late March. But the Soviet leader still was not ready to take the plunge into the sort of free-market system that many were advocating. He rejected a plan for radical reform and, instead, endorsed a much more conservative program supported by Prime Minister Nikolai Ryzhkov.

``They want us to take a gamble,'' Gorbachev said at the time. ``They say, `Let's have free enterprise and give the green light to all forms of ownership, private ownership. Let everything be private. Let's sell the land, all of it.' But I cannot support such ideas, no matter how decisive and revolutionary they might appear. These are irresponsible ideas.''

The breakthrough, on the level of practical politics and ideas, began in May.

Gorbachev was learning fast that attempts to control the economy through traditional means had run out of support, both on the streets and in the legislature. Ryzhkov's original reform plan, which included a three-fold rise in the price of bread but little vision of privatization or decentralized authority, set off a surge of panic buying in late May and later was rejected by the Supreme Soviet.

Meanwhile, Yeltsin, campaigning on a platform of national sovereignty, was elected by the Russian legislature as its president. In effect, that made him the second-most-powerful politician in the country. Yeltsin quickly surrounded himself with young economists such as Grigori Yavlinsky, the author of an initial draft of the ``500 Days'' program. The huge Russian republic was saying, in effect, that it no longer would cooperate with a centralized economy.

Gorbachev began casting about for new ideas. Some of his closest and most radical Kremlin colleagues began speaking in the starkest terms of the ideological dead end in which they found themselves. ``What is our greatness in?'' Foreign Minister Eduard Shevardnadze asked. ``Territory? Population? Arms supplies? Or human misery? Lack of human rights? Poor living conditions? We have made our people, the entire nation, destitute.''

On July 27, shortly before leaving Moscow for a working vacation in the Crimea, Gorbachev summoned to the Kremlin a group of radical-minded economists. At the meeting, he expressed fear of the social upheavals and resistance that likely would follow radical reform. Gorbachev ``understands that there are even, or perhaps slightly better than even, odds of everything ending disastrously in the country,'' said economist Anatoli Strelyani.

Strelyani also reported, in an unpublished account, that Gorbachev said he felt he was fighting not only the Stalinist system but also the habits the system had created. Gorbachev, he said, ``deplores the well-known character traits of his countrymen - to obey orders unquestioningly, to shun responsibility or risks, to put up meekly with hardships.''

At the meeting, Gorbachev indicated that he finally had abandoned the conservative forces in the party and was ready to make joint cause with Yeltsin and the radicals who advocated a rapid transfer to a market economy. ``We must prevent a split of the center-left, friends,'' Gorbachev declared in his parting words.

Strelyani left the meeting convinced that while Gorbachev once believed in communism as an ideal, ``he has learned much since then. A capable and tenacious student, he realizes now that nobody can find a better path than the one trodden by the West, though it will be tough and painful going.''

On Aug. 2, Gorbachev and Yeltsin reached a crucial agreement - a political ``marriage'' of sorts. They formed a joint committee, headed by Shatalin, to work out a new radical economic-reform program that took into account the desire of Russia and nearly all other republics to control their economic destinies.

Gorbachev withheld his endorsement of the Shatalin plan until Tuesday, and even then he stunned his prime minister. Looking betrayed and rattled, Ryzhkov told reporters, ``Until now, I didn't know Gorbachev was in favor of the Shatalin program.''

On the floor of the Supreme Soviet, there were few illusions.

``We should tell the people that the Shatalin conception of a transition to the market is capitalism,'' said Leonid Sukhov, a deputy who was once a cab driver in the Ukraine. ``We should hold a national referendum, and if the people accept this concept, OK, then let's go for this capitalism if life is better under it.''

As for whether the plan will actually lead to higher living standards and an efficient market system, Shatalin had no answers - or no definite ones. ``In God we trust,'' he said.

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HOW FREE IS A FREE MARKET ECONOMY?

The Soviet Union and its former satellites in Eastern Europe are all grappling with the problem of converting their centrally planned economies to some form of a free-market system. But the simple labels of ``free market'' and ``centrally planned'' gloss over key differences among the socialist economies and the capitalist democracies they emulate. Economic freedom and government control vary widely from country to country and sector to sector.

Index of Economic Freedom

Summarized below are analysts' opinions of just how free some parts of the economy are in a selection of important countries of both East and West. the further to the left the country's name appears, the less that country's government owns, controls or regulates that sector of its economy, according to analysts.

(CHART NOT AVAILABLE IN ELECTRONIC VERSION)

Notes: Economists interviewed at seven institutions and think tanks rated aspects of each listed country's economy on an arbitrary scale of 0 (free) to 5 entirely government-controlled). Averages of the ratings are charted above. Economists from the World Bank, International Monetary Fund, Heritage Foundation, Institute for International Economics, Hoover Institution, Wellesley College and the U.S. State Department participated.