]]]]]]]]        THE SOVIET ECONOMY: WORSE THAN WE THOUGHT    [[[[[[[[ 
     by Nicholas Eberstadt, visiting fellow at the Harvard Center for 
     Population Studies and visiting scholar at the American 
                    Enterprise  Institute, 
          OP-ED page of The New York Times 11-23-88

                [Kindly uploaded by Freeman 07656GAED]

     In what has become a familiar pattern, an announcement from the 
Kremlin has confounded some received wisdom in the West about the 
Soviet economy.
     Western specialists have long maintained that the Soviet Union 
balances its budgets in peacetime.  Recently, however, Moscow's 
finance minister reported that the national budget is deeply in 
deficit and has been for years--previous official figures to the 
contrary notwithstanding.
     Although the announcement may have come as a surprise, the 
incident is neither isolated nor random.  One by one, basic Western 
premises about the Soviet economy are being challenged, and 
overturned, by glasnost's revelations.  Piece by piece, these same 
revelations seem to be confirming an alternative but still highly 
controversial view of a Soviet economy that is smaller, more 
militarized and more seriously troubled than most Western experts have 
allowed themselves to imagine.
     This alternative, but increasingly plausible, assessment of the 
Soviet economy has profound implications, both for Moscow and the 
West.  It could explain Mikhail S. Gorbachev's dramatic reform 
proposals as a purely tactical response to desperate circumstances.  
It also would suggest that Western trade with and aid to the Soviet 
Union play a much greater role in bolstering the power of the Soviet 
state than the United States and Europe seem to realize.
     Conventional Western analyses of the Soviet economy are hardly 
glowing.  They depict an enormously wasteful planning system, 
declining rates of growth and living standards decades behind the 
     The alternative view holds that even these seemingly unfavorable 
assessments are  too optimistic--that the true economic situation, on 
balance, is substantially worse than  estimates by the Central 
Intelligence Agency would suggest.  For years, proponents of this 
alternative view--many of them Soviet emigres have been politely 
ignored.  Since Mr. Gorbachev's rise to power, however, times have 
changed.  Their story, by and large, seems to be checking out.
    Here are the major points of contention between the conventional 
and alternative interpretations:
     ECONOMIC MIGHT.  C.I.A. estimates suggest that Soviet national 
output is currently a little more than half as large as America's, 
with per capita output a little less than half the American level.  
Last year, however, an economist with at [sic] the Soviet State 
Planning Committee (Gosplan) published a  Western-style reckoning of 
the Soviet gross national product in rubles. Even at the ruble's 
artificially high exchange rate, these numbers would make the Soviet 
economy barely a third the size of ours and would put Soviet per 
capita output at just over a quarter of the American level.  
      GROWTH RATES.  The C.I.A. estimates that the Soviet economy has 
grown by an uninspiring 2 percent a year since the mid-1970's.  But 
earlier calculations, Soviet commentators now say, did not make 
adequate adjustments for inflation (a phenomenon whose existence was 
previously denied).  Last year, in a now famous article, two Soviet 
economists suggested that per capita  output was slightly lower in the 
mid-1980's than it had been a decade earlier.
     Since then, more senior officials have painted an even bleaker 
figure.  Abel Aganbegyan, one of Mr. Gorbachev's top advisers, has 
admitted that the Soviet national income did not grow at all between 
l981 and 1985--implying per capita decline of almost 1 percent a year.
     DEFENSE BURDEN.   C.I.A. figures put military spending at 15 to 
17 percent of Soviet output.  This is harder to check, because, 
despite glasnost,  the Red Army's budget remains a closely guarded 
secret.  However, if Soviet and American military expenditures are 
roughly comparable (as many Western experts  believe) and the  Soviet 
economy is smaller than was thought, its defense burden would have to 
be higher than present C.I.A. figures suggest.  The Gosplan G.N.P. 
numbers, for example, suggest that Soviet defense spending could 
easily reach 25 percent of total output.
     FOREIGN TRADE AND THE NATIONAL BUDGET.  Almost a decade ago, Igor 
Birman, an emigre economist, wrote that the Soviet Union was running 
large and continuous deficits but masking them in its official 
figures.  That contention, of course, was officially confirmed last 
week.  But there was more to his argument.                                                         
   Mr. Birman held that imports and loans from the West play a far 
more important role in the Soviet economy than most observers seemed 
to understand.  Moreover,  he argued, the Soviet financial system 
permits Moscow to plug a huge hole in its budget through hard currency 
transactions--meaning, in effect, that trade with the West directly 
empowers the Soviet state.  Subsequent studies seem to corroborate 
portions of this thesis.  Calculations by the United States Census 
Bureau, for example, suggest that the proportion of imports in the 
Soviet economy may exceed the average for the industrialized countries 
of the industrial democracies.
   If the conventional Western assessment of the Soviet economy were 
accurate, Mr. Gorbachev's rush for economic restructuring and his 
urgent plan for increased trade with the West might seem hard to 
understand.  To judge by his deeds, however, the General Secretary 
appears to concur with the dismal view.
   As they survey the Soviet scene, Western analysts might do well to 
take that particular expert opinion into account.    

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