BALANCING SOVIET RESOURCES IN 1986-90: GORBACHEV'S DILEMMA

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP07G00258R000100060001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 32
• Document Creation Date: December 27, 2016
• Document Release Date: August 23, 2012
• Sequence Number: 1
• Publication Date: May 31, 1985
• Content Type: REPORT

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BALARCIRG SOVIET RESOURCES IR 1986-90: CORBAChEV'S DILERiNA
An Intelligence Assessment
(Information as of 31 Nay 1985 was 11sec] in this report)
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Table of Contents
Key Judgment,-;
Preface
Introduction
Current Economic Policy
3
The 12th Five-Year Plan Dilemma
6
Competing Demands
6
Defense
7
Investment
10
Consumption
13
Growth Prospects and Eesource Trade-,Offs 16
Addressing the Dilemma lb
The -Ealanced Option 19
A More Eadical Option 21
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Key Judgments
General Secretary Gorbachev must decide how to address the
conflicting demands of the major resource claimants during the
next five-year plan period (1986-90). This will be a far more
difficult balancing act than before because:
-- The leadership is likely being pressured to increase
allocations to all three resource claimants?defense,
investment and consumption?unlike recent plan periods
when it seemed that the demands of one or another
claimant could be safely deferred.
Soviet economic growth probablyw-ill continue its
downward trend through the end Of the decade--at a rate
of 1.5-2.5 percent per year.
If Gorbachev believes that the rebound in ;rowth that
occurred in l93-84 can be sustained--by good weather and his
current emphasis on new personnel, measures to tighten discipline
and modest economic reforms?the resource dilemma might not
appear so urgent. Specifically, an annual growth rate of about 4
percent would allow for a balanced approach to resource
allocation during 1986-90--in essence a continuation of the
strategy followed during the current five-year plan period.
If Corhachev's initiatives cannot spur the recluisite growth,
pressures will increase to change these priorities. the time
the failure to accelerate growth becomes apparent--probably a
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year or so into the 12th five-year plan--Gorbachev will have had
a greater opportunity to develop his
consolidate his political position.
conservative economic policies and a
economic
strategy and fully
Ile may still decide that
balanced resource approach
are his best options, particularly if, like some Soviet
economists, he sees the next decade as a time when some of the
resource constraints such as labor shortages will be relieved.
On the other hand, Gorbachev?who can look forward to a long
tenure--may be ready to take a gamble that the economise benefits
flowing from a more radical approach will- outweigh the potential
- political risks. This might entail a bolder approach to economic
reform?such as a program equal in size and stature to the
Kosygin
reforms of 1965 or a major expansion of the private
r=tor--which would be a good litmus test of the leadership's
:itment to change.
In the resource allocation area, Gorbachev may decide to
risk the political fallout associated with giving a clear
priority to one of the major claimants. The choice of which
claimant tc favor would depend on a variety of domestic and
external catalysts, such as the state of US-Soviet relations, the
success of efforts to narrow the technology gap with the est,
and the apparent link between consumer frustrations and the
failure to raise productivity growth.
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should see some leading indicators of such a shift in
resource allocation policy:
A substantial boost in military expenditures might be
indicated byan accelerated deployment of major weapons
programs or the replacement of Finister of Defense
Sokolov with a more aggressive military figure.
-- A shift to investment might be indicated by a major boost
in orders for V:estern equipment and technology and major
new investment programs in sectors other than food,
energy and machinebuilding.
-- The consumer might be favored if we see the elevation of
strong consumer advocates to the Politburo such as party
secretary Kapitoncv or the promulgation of an impressive
consumer goods program backed by a real resource
commitment.
Regardless of which option is chosen, Gorbachev and his new
team will have a full plate coping with the consequences of
continued slow growth and mounting resource demands. This nexus
of problems and the solutions chosen will have a direct impact on
Soviet policy with the United States and its allies. Some would
raise the degree of confrontation while others might spur a more
accommodating posture.
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Preface
This paper looks at resource allocation issues over the next
five years from the leadership's perspective. It examines the
pressures that are being exerted upon them to choose among the
resource claimants. These pressures are both. economic--the needs
to modernize the aging capital stock and to house and feed the
population--and political--the need to juggle the support of
powerful vested interests and maintain legitimacy in the eyes of
the general public. The pressures are not only domestic but
external--,the US military buildup and the state of East-West,
trade relations, for example.
A further complicating factor is that these decisions are
being made by a leadership in transition. The way that the new
Gorbachev team handles these problems may give us clues to their
actions in other policy areas. There are pressures on them to act
quickly and decisively but also good reasons for them not to.
There are a bewildering array of options open to them. The paper
attempts to narrow these choices, as they must do, and present
the most likely alternatives. Eecause the leaderhship's strategy
is not easily discernible, we present someadvance indicators of
a shift in course.
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?
In
1;ork was almost complete on the 1986-90 plan when Chernenko
died, and it is unlikely that Gorbachev will disrupt its
progress. As Second Secretary with increasing responsibilities
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as Chernenko's health deterioriated, he probably had a good
opportunity to influence the plan's priorities. The economy in
cc-neral was apparently one of his responsibilities, and
agriculture
had been
his portfolio on the Secretariat since
1970.
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Gorbachev,
moreover,
may not feel it necessary CO take
initiatives at this point, opting instead to take advantage of
the five-year plan's natural evolution. A five-year plan is just
a general statement of intentions and not a rigorous timetable,
although the five-year defense plan may be less susceptible to
change. As conditions change and/or planning mistakes occur, the ?
annual plans traditionally are amended accordingly. In addition,
as Gorbachev rejuvenates the ranks of economic administrators and
formulates his own economic strategy, he can begin to influence
and shade the multitude of economic decisions that constitute. the
annual ',plan and which may eventually result in a perceptible
shift in priorities.
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Current Economic Policy
During 1981-85, the Soviets had to cope with mounting
resource demands and slowing growth. They initially chose a
strategy that allowed for only modest growth in investment and
small increases in consumer welfare but subsequently decided to
boost the rate of investment growth. The slower growth in defense
begun in the previous planning period continued at least into the
first two years of the 1981-85 plan, and there is continued
uncertainty as to its motive.
Defense - The Soviets have never published comprehensive
projections of defense spending.
V,e- estimate that at least in
1981-82, the growth of defense outlays held to about 2 percent,
as it had since 1976. Because this rate paralleled the downturn
in economic growth, the share of CUP devoted to defense during
the past decade remained stable at 13-14 percent, nearly twice
the US ? share. The slowdown in the growth of defense spending was
due largely to zero growth in military procurement.
Preliminary evidencefor 1983 shows an upturn in
procurement, but it is too early to tell if this is an indicator
of a resumption in more rapid growth of defense expenditures. A
12 percent increase in the official defense budget for l985 was
announced at the Eovember Supreme Soviet session. This
announcement could be just a political gesture to indicate that
Moscow intends to maintain a strong defense posture, but it could
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also be indicative of a real increase in defense expenditures.
Investment - The Soviets planned to hold down investment
growth during 1981-05 and rely more on productivity growth, as
they had in 1970-80. However, the rate of growth in industrial
production fell at an alarming rate, and capital costs rose even
faster than before--largely because of unforeseen costs in
bringing new capacity into production and mistakes in allocating
investment. The Soviets apparently abandoned this low investment
policy early in the plan period. Investment growth during 1981-
85 probably will be about double the planned rate although rates
of growth in individual years have been uneven.
%,ithin the investment sector, major programs such as energy
and agriculture and those sectors that are critical to enhanced
productivity gains such as machine building apparently are
receiving the lion's share of investment resources during 1981-
83. According to Cosplan chief Baybakov, three sectors will
enjoy "preferential" rates of investment growth in 1985--energy,
raw materials, and machinebuilding.
Consumption - Indicators used to judge planned growth in
consumer welfare suggested that overall gains would be small
during 1981-85. Specifically, the Soviets planned to hold down
the growth in wages and transfer payments to the lowest rate in
at least 20 years, a move that would have been inconsistent with
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planning a large increase in the availability of goods and
services.
The regime apparently decided to focus its limited resources
for the consumer on those areas-food and housing-- that were
most vital to maintaining the consumer's sense of well-being.
Evidence of the leadership's commitment to improving food
consumption was the launching of the Food Program in 1902-
designed to to increase incentives, reduce waste and redistribute
investment--and the continued purchase of large quantities of
foreign grain and meat. During 1981-65, Eoscow will i5robably
spend over .(50 billion on imports of farm products, or about 40
percent of its total hard currency import bill. Lousing has
received increased priority in this planning period; during 1981-
84 commissionings of new housing averaged 110 million square
-E2rs compared with 107 million in 1976-80. The regime also
,-tiated improvements in the consumer area that did not require
,.an expenditure of resources. An economic experiment begun in the
consumer services area in July 1984, for example, was designed to
improve management and worker incentives in this long-neglected
consumer area.
Actual consumption growth during 1981-25 probably will be
even lower than the Soviets anticipated. Largely as a result of
poor harvests, per capita consumption actually dropped in 1982
and increased by only about 1.5 percent in 1983. Farm output
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nearly stagnated in the late 1970s and early 1980s, partly
because weather conditiOns were much less favorable than in 1964:-
74. The slow growth in per capita consumption may also be
related to a reduced priority in allocating new investment funds
to consumer-related areas in the previous planning period.
During 1976-80, investment in agriculture, light industry,
processed foods, and housing took only 30 percent of the increase
.in total investment compared with 41 percent during 1966-70 and
1971-75.
The 12th Five-Year Plan Dilemma
Competing Demands
The competition for resources among the major claimants
during 1986-90 will be far greater than it was in 1981-85. Then
the leadership went into the planning period believing that
productivity growth could compensate for lower rates of
investment growth and was willing to tolerate low growth rates
for defense spending. how the leadership is under pressure to
allocate substantial increases to all major resource claimants:
-- The Soviet military must be arguing for a boost in
allocations given the past slowdown in procurement, the
number of projects entering the production stage and the
US military build-up.
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-- Increased investment is needed to replace the antiquated
capital stock and also to keep pace with the ambitious
investment programs already adopted for food and
energy.
-- Consumer demands must continue to be satisfied in order
to boot productivity growth and, in the eyes of some
observers, to prevent civil discontent.
Defense
Plans for force modernization and the fact that major
weapons sytems are coming to the end of their developalent cycle
argue for boosting defense over the coming years. ve estimate
that a substantial number of new or modified systems will reach
initial operational capability. during the 190.0s?substantially
more than either of the two previous decades.
during 1986-90 the Soviets will
attempt to:
-- Achieve a major modernization of their strategic
defensive forces,
-- Continue the broad modernization of their strategic
offensive forces with major production programs for each
of the primary strategic force elements.
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-- Increase greatly their power projection capability,
including their. first-ever estern-style aircraft carrier
and a new heavy transport aircraft.
-- Push the rapid expansion of their military space effort.
-- Sustain :the modernization programs for conventional and
theatre nuclear .forces, especially those deployed
opposite LATO.
Pressure to compete with the US Strategic Defensle Initiative
(SDI) will also add to defense requirements and make it more
difficult for the Soviets to plan for long-run military needs.
Soviet scientists have stated that a workable US SDI system will
not be possible for at least a decade and that the cost of
countering it will be far less than building one, but their
statements suggest a fear that. a technological breakthrough
resulting from SDI-related research, such as in lasers, could
have a more immediate payoff in other weapon systems.
Soviet leaders from Brezhnev through Cheraenko have had to
deal with critics who argued that the military was not receiving
adequate resources to counter the perceived US threat. The
October 1982 speech by Brezhnev to the military leadership was a
clear attempt to calm disgruntled elements there. hhile he
tossed them a sop by endorsing the military's need to stay
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competitive in R&D and by omitting mention of START of ILF talks,
he took the position that the. Party "adopts measures to meet all
your needs," a view that was generally endorsed by Defense
Minister Ustinov.
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Chernenko stated soon after becoming General Secretary that
the allocation of "considerable resources" to defense ?"over the
past five years" had not been allowed to cut into "social
programs." A subseciuent reformulation of this pronouncement
July and September 1984 seemed designed to establish that
in
this
was not just an historical statement but current policy.
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the defense sector has been forced to share its priority claim
to
resources with some consumer-related sectors, especially the Food
Program. In April 1984, Chernenko
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did not believe it necessary
extend the work week or establish a defense fund in order
preserve the country's security. Or other occasions, however,
he
raised the spectre of nuclear war precipitated by Pershing
deployments and growth in US military budgets.
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One group arguing for increased resources for defense
apparently is a military contingent which disagrees with Brezhnev
that "all the needs" of defense are being met. Larshal Likolay
Ogarkov, former Chief of the General Staff, has been a vigorous
spokesman for military interests and may belong to this group.
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During the last several years Ogarkov has repeatedly emphasized
the need to compete with the US defense effort, on which, he
asserts, the Reagan administration has lavished "incredible
sums." his assertiveness on this issue may have played a role in
his demotion last September.
Some members of the Politburo may also feel that it is time
for a boost in defense spending. In their Supreme Soviet.
election speeches early in 19ts4, most of the leadership described
the strengthening of defense as a longstanding Concern, but one
not requiring a diversion of resources. Two leaders; however--
Party Secretary Romanov, responsible for the defense industries,
and Ukrainian party chief Shcherbitsky--took a somewhat- different
tack. Romanov said that the party and state "will equip" the
Army and Lavy with everything necessary--a nuance at variance
with the prevailing line that the armed forces already had
everything they needed. Shcherbitskiy said that the Soviets will
return to detente "only when the defense might of the Soviet
Union and cur allies is sufficient...", a statement that might
also be interpreted as a call tor increased resources. In late
1904, he announced the appointment of a new republic Central
Committee Secretary to supervise the defense and high technology
industries, the only republic leader to do so.
Thus far, Corbachev's public position on this issue has not
been established. While citing the need 'more than ever to be on
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guard, to display high vigilance, and to strengthen our defense
in the face of Imperialism's mounting aggressiveness," he has
often balanced such assertions with more conciliatory rhetoric.
In his February 1935 election speech he merely assured his
audience that defense was being maintained "at the proper
level."
Investment
If the Soviets continue to have problems in raising
productivity growth, as they have in the past, then a boost in
investment growth* during 1986-90 is required to:
support major new programs for food and energy;
expand the machinebuilding and metalworking sector--the
key to future production of investment goods, military
hardware, and consumer durables;
.relieve bottleneck sectors such as transportation;
-- modernize sectors vital for productivity growth such as
ferrous and non-ferrous metallurgy.
The Food Program, introduced in Nay 1932, has been given
high priority by successive regimes as the key to reducing
dependence on foreign imports of grain and foodstuffs. This
program laid early claim to about one-third of total investment
during 1986-90, the same share that was allocated in the current
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five-year period. According to Soviet data released in
conjunction with the approval of the Long-Term Energy Program,'
'investment in the energy complex during the 12th'Five-Year Plan
will take 22 percent of total investment compared with about 17
?percent during 1981-65. Eoreover, this share might be further
increased since Soviet planners may be in the process Of raising
their estimates of investment .requirements in energy. Soviet oil
. production in 1934 was 3 million tons less than in 1933, and
Soviet press reports indicate that the amount of drilling
required to achieve the 1984 output. was well in excess of plan--
suggesting that investment requirements, in this sector were
underestimated.
If the momentum of the Food and Energy Programs is
maintained--as leadership statements suggest?allocations to the
remaining sectors will be squeezed severely; if total investment
increases by only 2 percent, for example, investment in these
sectors must remain flat. This squeeze comes at a time when
there is a critical need to increase investment in
machinebuilding and metalworking in order to raise its
technological level.
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all equipment has been in operation for more than 15-20 years,
while capital repair in industry is equivalent to at least one-
third of total investment in new fixed capital.
A substantial backlog of necessary investment exists in
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other areas as well. The transportation sector, especially the
railroads, remains a potentially serious bottleneck. Officials
from the Central Lsian republics have lobbied heavily for costly
irrigation projects. Such industrial branches as ferrous and
non-ferrous metallurgy and chemicals require more investment
funds if they hope to raise productivity. Investment funds are
also needed for long-neglected consumer areas such as light
industry.
The squeeze is already evident here.
the most serious problem has been the
scarcity of investment funds for light ,industry.
In contrast with previous plan periods, the leadership has
been silent concerning the future direction of investment
'growth. In 1979, for example, then Chairman of the-Council of
Mnisters Kosygin noted that the low investment growth occurring
during 1976-SO was a "positive trend.., it must be enshrined in
plans for the future." however, members of the current
leadership have repeatedly called for an acceleration of
scientific and technical progress, which has direct implicationE
for investment growth. Gorbachev, in fact, has called for
"revolutionary change" in this area and has noted that the
problem is particularly acute because of the "considerable age"
of the country's production apparatus.
Vithin the investment category, the leadership has
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apparently reached a consensus to continue supporting the
investment demands of the Food and Energy Programs and to
increase investment in kBhAl summary. of the proceedings of a
July 1924 Central Committee conference on the five-year plan
noted that the "faster growth" of machinebuilding was being .given
"great attention." Gorbachev, in major speeches both before and
after becoming General Secretary, indicated that investment in
FBMW must be given preferential treatment. he told the April
party plenum that it is necessary "to speed up by one and a half
to .two times" the rates of growth in this sector during 1986-
90.
Consumption
Continued growth in consumption is rec_iuired during 19E6-90
in order tc stimulate the growth in labor productivity and to
.help prevent worker unrest. The most urgent demand continues to
be an improved diet. The FoodProgram, particularly the emphasis
on decreasing waste in procurement and processing, may yield some
results during 1986-90, but it will not be a panacea. One of
the Program's major features--the redirection of investment
resources between the farm sector and its subporting industries--
will not bring a c]uick pay-off and indeed is not occurring at
planned rates. As a result, the Soviets will need to continue to
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allocate scarce foreign exchange for food imports for the
foreseeable future.
A new consumer program for 1986-90, only parts of which have
been unveiled, is to concentrate on improving the supply of non-
food consumer goods. Although it will recauire some increase in
resources, a Cosplan official indicated in a Soviet press article
last July that the program's success would depend largely on
better and more efficient planning and organization rather than a
?larger resource commitment. In a recent conversation with a US
Embassy officer in 'oscow, a Soviet econondst working on the
program revealed that the program has ppt succeeded in wresting
the necessary resources to make it "impressive enough" to
introduce. One problem is the reported unwillingness of certain
CEA countries to pledge increased exports of consumer goods to
the USSR when they could be sold to the est for hard currency.
The recent regimes have been careful not to raise the
expectations of the consumer for l906-9U, althouh they have
continued to cling to the rhetoric begun in the Lrezhnev era that
the major focus of the five-year plans is the consumer. Ever
Chernenko, who was generally regarded as the leaning consumer
advocate under Erezhnev, toned down his rhetoric on this issue
when he became General Secretary. he reminded workers that if
they wanted to live better, they had to work better, and he held
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cut the prospect of improving only selective consumer areas that
would have the greatest impact on worker morale?food and
-personal and communal services (particularly housing and medical
services). Chernenko believed, however, in zealously defending
these favored sectors from encroachment by other claimants,
exemplified by his statement about limiting the impact of defense
spending on "social programs."
It is likely that -Gorbachev shares Chernenko's sentiments
about the importance of selected consumer areas, particularly
food, since he has been the leadership's agricultural spokesman
since 1978. In his December ideelogy speech he also emphasized
the need to improve the health care system, which "does not fully
meet present needs." however, since becoming General Secretary,
Gorbachev's messages to the consumer generally have been less
reassuring than those of his predecessor. he has been a firm
advocate of "social justice," which includes the policy of tying
wage increases closer to productivity growth. he has also picked
up on Andropov's discipline campaign which had flagged under
Chernenko.
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"order" and discipline" would be required to "squeeze more out of
the economy." noreover, in this same forum, he warned that
consumer sacrifices might be necessary if national income orowth
does not reach 4 percent per year during 1986-90.
Growth Prospects and Resource Trade-Offs
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Despite some improvement in the economy's performance during
1983-84, Soviet economic growth is likely to continue its long-
term downward trend (see Figure 1). V:e estimate that Soviet GIP
growth will range between 1.5 and 2.5 percent annually during
1986-90 because of the regime's continued inability to generate
resource inputs at past rates and to stem falling productivity.
This reflects mainly:
-- smaller additions to the working-age population during
the next several years than at any time since the early
1960s.
-- rising costs of extracting and transporting industrial
raw materials.
-- a continued slowdown in the growth of capital stock.
-- only marginal improvements in growth from Gorbachev's
campaign to reinvigorate management and increase worker
The Soviets can do little to ameliorate the first two
problems during the remainder of the 1980s. Labor force
participation rates for both men and women in the, primary working
ages (20-59) are already over 90 percent--higher than in any
country in the world--and the majority of the pension-age
population have jobs. Also, production costs will continue to
rise rapidly over the next five years, particularly in the
extractive industries, as a result of the declining quality and
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quantity of easily accessible raw materials. A leadership
decision to boost investment would have some impact on CEP growth
during 1986-90 but its principal effects would fall in the
1990s. New fixed investment is converted into capital stock with
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a substantial lag, and the existing capital stock is so large
that increments in investment would
have to be
very large to
significantly boost its growth.
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The Soviets sooner or later
must face the
fact that the
growth in CNP during 1986-90 will not permit them simultaneously
to give preference to investment growth, return to the defense
spending rates of the early 1970s, and.,increase consumption
substantially. A major commitment could be made in one of these
areas, but this would probably require little or no gain in one
or both of the others. If, en the other hand, defense,
investment, and consumption are all allowed Soilie growth, none
will grow enough to meet the full range of challenges faced.
One example should suffice to illustrate the dilemma.* If
the Soviets were to accelerate defense spending to 4-5 percent
while maintaining investment at 4 percent, a faltering in overall
economic growth would cause living standards to stagnate or even
decline. Looked at in another way, the decision to accelerate
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both investment growth and defense spending would cause the share
of output from the machinebuilding sector going for consumer
durables to decline rapidly and be cut by almost two-thirds by
1990. A sharp increase of machinery imports from the est and/or
Eastern Europe would relieve pressure on the domestic
machinebuilding sector but would force Noscow to cut back on its
agricultural purchases or accept a large increase in its debt.
Addressing the Dilemma
An unusual absence of heated debate over the 1906-90
plan may indicate continued optimism over future economic
performance and/or a deliberate decision to avoid potentially
divisive issues at the leadership level. In any event, there is
no need to define a strategy at this point; annual plans will be
continually amended in response to changing economic conditions
and leadership policies in addressing them.
Corbachev has publicly demonstrated his impatience with
slowing economic growth and--by dismissing some senior officials
and publicly stressing the urgency of economic change--has made
t clear that he will take steps to improve economic
performance.(see Box). Few Corbachev ultimately responds to the
resource dilemma will have implications for his strategy in other
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areas Traditional soviet conservatism and optimism argue
strongly for a continued blancing act among resource claimants in
the hope that future improvements in economic performance will
allow some gains for everyone. This option will look less viable
if economic growth continues its downward trend. A more radical
approach may then be tried--giving clear priority to one of the
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.3OX TEXT
GORBACLEV'S EMERGING AGENDA
April speeches by General Secretary Gorbachev and First
Deputy Premier Aliyev outlined ambitious goals for revitalizing
the Soviet economy and addressing social problems. Both leaders
were implicitly critical of Chernenko's inaction. Gorbachev
identified accelerating economic growth as his primary domestic
goal and claimed Politburo backing for a strategy that include6
more rapid introduction of new technology, a restructuring of
investment, new initiatives in managent and planning and
stricter performance standards.
Both Gorbachev and Aliyev appeared to pin particular hopes
on the ability of their social program to spur managers and
workers to operate at peak efficiency. Their social agenda
includes a pledge to link material rewards more closely to
performance, an offer of accelerated advancement to younger
better educated cadres and an attack on corruption and
privilege.
BOX TEXT END
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claimants. If consumption or investment were chosen, this would
hold some promise of breaking the low-productivity slow-growth
:logjam and ultimately narrowing the technological and consumer
welfare gaps but would risk losing the crucial support of major
interest groups.
The Ealanced Option
The new leadership probably will steer away from major
changes in economic policy while Corbachev is consolidating his
political position and assessing the economy's growth
prospects. Gorbachev, despite his stated disappointment with ?
this year's economic growth, may in fac,t believe that the
economy's improved performance in lgb-4 can be sustained
through the rest of the 1960s. In his view, a little luck with
weather, some modest economic reforms, a rejuvenation of key
economic personnel, and a reinvigorated discipline campaign might
boost growth enough to substantially ameliorate the resource
dilenma.
In his hay speech to part-1 members in Leningrad, he ?
? inicated that the target for growth in national income for
90 would be an ambitious 4 percent. If Gorbachev chooses this
option, we might expect to see:
-- a balanced approach to resource allocation, that is, no
clear priority for one claimant over the others.
-- strong emphasis on worker discipline and
experiments in economic reform,
71
continued modest
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-- restrained interest in growth of East-est trade and
continued reluctance to incur a substantial increase in
their hard currency debt.
Such a policy, reinforced by shared high expectations of
growth, would stand a good chance of being accepted by the major
interest groups, at least in the short run. Although
consumption's share is likely to decline, consumer advocates
could take some satisfaction in the continued commitment to food
imports, the Food Program, and improvments in selected areas such
as housing and medical services. A higher investment target
would be heartening to those who belieVe that this is necessary
to lay a foundation for future gains in productivity. Nilitary
interests would be served by some rise in the growth rate of
-pfense spending, which should allow for impressive force gains
1-1g the remainder of the decade.
A yore Radical Option
However, if growth proves to be 1.5-2.5 percent per year
during 1986-90, as we predict, then even the modest demands of
the resource claimants cannot be satisfied. Pressures will
increase to take more decisive action. Even with these
pressures, Gorbachev may still decide that conservative economic
policies and a balanced approach to resource allocation are his
best option. He may not feel confident enough to aspire to more
than "muddling through." This option will continue to look
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attractive particularly if the leadership believes that the 1990s
will reduce some of their economic constraints. Growth in the
labor force, for example, will turn upward again in the next
decade.
On the other hand, Gorbachev?who looks forward to a long
tenure?may decide to exercise a more radical option. In so
doing, he would have to weigh carefully the long-term economic
benefits against the potential costs to his political power and
prestige. Evidence of such a shift might be his general approach
to the issue of economic reform--a good lita,us test of any
leader's commitment to change.* A referm program ecival in size
and stature to the Kosyyin reforms of 1(j65--intended to increase
enterprise autonomy and improve incentives?or a riajor expansion
of the private sector would be the type of reform needed to
signal a distinct break with the policies of recent regimes.
In the resource allocation area, this willingness to take
more provocative actions could result in a decision to grant a
clear priority to one resource claimant rather than accept the
predictable consecluences?continued slow growth?of a balanced
approach. If consumption or investment was given priority, the
hope would be that this would stimulate growth enough to
eventually satisfy the demands of all claimants. If defense was
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favored, the Soviets might hope that this would provide the
necessary security in the short run, but in the longer-run, the
increased investment and technology dedicated to defense could
provide some support for the civilian sector as well. , The one
chosen for favored treatment would depend on a variety of
domestic as well as external factors such as:
-- A collapse of the strategic arms talks and/or,
breakthroughs in US research on SDI might favor a shift
to the military.
-- Continued difficultiGs in accelerating the pace of
science and technology, even af-ter launching a major new
program in this area--scheduled for a June unveiling--
might bolster the position of those who argue for
increased investment growth. In this regard, the rumored
addition of influential economists such as Abel
Aganbegyan to Gorbachev's band of advisors is
significant.
-- A realization that the slow growth in consumption causes
worker frustrations that will continue to work counter to
measures to boost productivity growth and which cause an
unacceptable ennui in every aspect of Soviet society
might tip the. scales toward the consumer.
e can expect to see some advance warning of such a shift in
resource allocation policy. Indicators of a preferential growth
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rate for defense might be:
-- Replacement of rinister of Defense Sokolov with a more
aggressive advocate of an accelerated defense effort.
-- A reversal of the policy to 25X1
force the defense sector to share its priority claim to
resources with some consumer-related sectors.
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Indicators of a preferential growth rate for investment might be:
tajor new investment programs in addition to those for
food, energy an mactinebuilding.
-- Leadership statements that draw--a direct link between
-their technology gap with the hest and the ',slow rate of
investment growth.
-- A major boost in orders for estern ec.iuipment and
technology and a willingness to increase the burden of
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Indicators of a preferential' growthrate for consumption might
be:
-- Promotion to Politburo status of party secretary
Kapitonov, now responsible for light industry and
consumer goods.
-- Promulgation of a consumer goods program that allocates
additional resources to this sector rather than relying
mainly on better planning and organization.
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-- Sizeable increases in wages, sustainable only by
increases in the availability of goods and services.
Regardless of which option is chosen, Corbachev and his new
team will have a full plate coping with the consequences of
continued "slow growth and mounting resource del/ands. This nexus
of problems and the solutions chosen will have a direct impact on
Soviet policy with the United States and its allies. Some would
raise the degree of confrontation while Others might spur a more
accommodating posture.
-- A high investment strategy, for example, would motivate
Noscow to increase imports from'the
-- P. high defense- strategy would increase tensions with the
Vest but, ironically, would also require expansion of
East-est trade to acquire high technology.
A high consumption strategy might imply internationally a
relatively more moderate policy and spur agreements on
arms controls.
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