The last may have already happened, largely by virtue of the sharp and mostly administrative increases in official retail prices on 2 April 1991. (It seems that the producers and ministries "ran away" with the prices and raised them significantly above permitted levels.) The monetary "compensation" for the April retial price increase that is being paid to the public, differentiated by social groups, offsets perhaps about half of the actual price rise. Further price increases can be expected before the end of this year.
In the event that the standoff between the center and the republics moderates, the results for 1991 could be less "grim" - but hardly very much less.
This said, in truth it is extremely difficult to establish with any numerical exactness just what is currently happening in the Soviet economy. Although, under its current leadership, the official statistical establishment is trying to improve the quality and comparability of its data, as well as increase the volume of statistical publication, its efforts are thwarted by the fractious realities of the moment. Great ranges of multiple prices for individual goods in a given place and time; physical shortages of goods; wide use of barter (for lack of faith in money); corruption, ubiquitous black markets, evasion of taxes and of administrative regulations; the fragmentation of the country into scores if not hundreds of what amounts to semi-independent principalities (due to erosion of central control), each with its own rationing norms, administrative rules, trade barriers, price controls, etc. - combine to make the statistician's lot not a happy one in the USSR. And yet, the broad trends in production and consumption are probably what we think they are; in other words, close to catastrophic.
No less important is the picture in regard to the distribution of personal income and wealth. Here, our data are even more opaque; yet it is difficult to escape the impression that 1991 has hit a new high (or low) in terms of the differentiation of personal income and wealth. The losers are that large portion of the population whose livelihood depends chiefly on official sources of income (wages, salaries, pensions, etc.), which have generally fallen in real terms this year; and/or whose informal incomes have risen less than inflation; and/or those with few lucrative personal connections. But many others have gained considerably riding the crest of the many new opportunities both for profitable production and commerce and for quick arbitrage and black-market dealing - by dint of growing shortages and soaring prices, substantial liberalization of private business activity in various new legal forms, and the chaos itself.
Thanks to such rising private opportunities in the midst of general confusion and chaos in the economy, the Soviet Union may today present some of the
best prospects for quick personal enrichment. Nor need one keep one's wealth in rubles; there are innumerable ways of various degrees of legality or illegality for transferring private money abroad.
But note that until money and prices are stabilized, the federal issue is resolved, and the legal underpinnings of private business are further secured, private money will continue to shun long-term, illiquid investment and to seek the quick and easy deals. We must not be misled by stories of successful new Soviet entrepreneurs. Few of them are long-term investors.
Needless to say, large personal gain frequently derives from de jure or de facto "spontaneous appropriation" at the state's expense. And since those closest to the state's assets, the traditional elite (including the old management), obviously have the best possibilities of appropriating it, the phenomenon of the "propriation of the nomenklatura" has acquired if not mass dimensions then at least mass attention (as in Eastern Europe) with definite political implications.
There may be nothing wrong with the propriation of the nomenklatura or the use of "dirty money" to buy the state's assets - and indeed this may be the quickest road to privatization - but is this the kind of privatization we have in mind when we list the conditions for Western assistance, such as marketization and privatization of the economy and democratization of the polity? Do we want to see a market economy of sorts ran by cartels of the same old communist bosses and the same lords of corruption and organized crime in a new guise?
If privatization by quick and dubious appropriation be ruled out, how many decades will it take to marketize and privatize the Soviet economy? In the meantime, will democracy develop and survive? Some other economic arrangement would have to be in place. Would it be largely the old command system - thus foreclosing hope of both economic progress and democratic revival? Or will there be a protracted interim phase of state-owned firms operating in a market context, i.e. a socialist market economy (to use an old term)? Indeed, for the reasons just suggested, and despite its disadvantages, the latter may yet have a lease on life in the USSR and in Eastern Europe as an alternative to something less attractive.
What will the USSR be like five years hence? Indeed, what will it be like five months hence? In 1986 who could have foreseen the USSR of 1991, the world of 1991? I suspect that it will be more decomposed (in various ways) than democratic, with an economy still as much administered as marketized, an economy still more chaotic than capitalistic, with great private-profit opportunities precisely for these reasons rather than despite them.
The reasons are that the economic problems are too deep, the political and national problems too acute, the legacy of the old days too tenacious. The process of privatization of state assets will be too slow (if not too threatening, in the way described above). And most of all, after everything else is set aright, the physical capital stock will have to be rebuilt almost from scratch. This rebuilding and re-equipping, its technical upgrading, and most of all, its re-orientation toward new social objectives and toward the outside world, will be protracted and enormously costly. As will be the management of the accumulated environmental destruction and toxic contamination.
The country will remain poor for a long time; and it will be in need of an expensive social safety net to avert or contain political disasters. Consequently, for some time the role of the state (or most successor states) will remain large, the tax burden heavy, and the rate of investment (private and public) in GNP will continue to be high. The day of a Soviet Thatcher may yet come, but not very soon. The United States should have no illusions on these scores.
It was in this situation of economic, social, and political flux that it was announced on August 19, 1991, that Gorbachev had relinquished, for reasons of health, his high government and Party posts. The rightist coup appeared to be, at least initially, successful. Yet it collapsed within three days because of the popular opposition led by Yeltsin, poor organization, and, apparently, the refusal of key military and police units to execute the orders of the leaders of the coup. The results of the collapse of the coup included the return of Gorbachev, a great enhancement of Yeltsin's position, the arrest of the leaders of the coup, and the discrediting of many more government, Party, and military leaders - indeed of the Party and the police themselves - with Gorbachev leaving the Party and Party activities being "suspended" pending investigation. Also, the process of the dissolution of the U.S.S.R. gathered great momentum. Lithuania, Latvia, and Estonia declared immediate independence, which received international and even Soviet recognition. Most other republics, including Ukraine, also proclaimed independence, although, on the other hand, plans and negotiations continued for a new confederation or perhaps commonwealth, if not an effective federation. In fact, after a negative vote and subsequent modifications, the All-Union Congress of People's Deputies approved on September 6 Gorbachev's "transitional" plan of governing the Soviet Union, which gave more power and authority to the republics, but still provided for some central institutions, including the State Council to deal with foreign affairs, military matters, law enforcement, and security.