The Great Market Debate in Soviet Economics.

This book is part of the M.E. Sharpe series on The USSR in Transition/Readings and Documents. The Great Market Debate provides an excellent collection of Soviet articles and round table discussions exemplifying the economic debate concerning the creation of a market economy in the former Soviet Union during the 1988-90 period. The 'Ryzhkov Plan,' the 'Shatalin Plan' and the 'Gorbachev Plan' are reproduced at the end of the collection of articles. This book will be useful to both graduate and undergraduate courses on the Post-Soviet economies.

To place this volume in some context one needs to remember that the Soviet revolution of Gorbachev did not follow exactly the Romanian, Czechoslovak, Bulgarian or East German models. In these East European countries popular pressure for democracy continued to build up until the communist regimes caved in. In the Soviet Union the transformation began as a revolution from above, engineered by the leaders of the old system such as Mikhail Gorbachev, Boris Yeltsin, Alexander Yakovlev and Edward Shevardnadze.

The political changes in the former Soviet Union have been followed by economic changes, although with a substantial lag. While some analysts have concluded that the August 19, 1991 coup was the last conservative attack on democratic change, attacks on the economic reforms are not yet over. At the writing of this review, Prime Minister Yegor Gaidar the architect of the implemented economic reforms in the former Soviet Union, moved to gain greater control over pricing systems and profitability ceilings on monopoly producers. The executive order "On State Regulation of Prices and Tariffs on Products and Services of Monopolist Enterprises in 1992-1993," signed on August 11, 1992 establishes the state regulation of prices on products manufactured by enterprises on the state register of industrial umbrellas and monopoly manufacturers. The methods envisaged include a set of price controls and ceilings on price changes, and maximum profitability levels. In effect, the reform is moving towards regulated markets.

On the financial side, an attempt to maintain a 'ruble zone' encouraged by international organizations, appears to be crumbling. Political developments as well as the progress of economic reforms in the former Soviet republics, (including the Russian Federation), suggest that the second half of 1992 can be viewed as a transitional period from a single ruble zone to a zone of multiple national currencies.

Over the second six months of this year, the number of countries using the ruble as the single legal tender is expected to dwindle from 14-15 to 7-10 or possibly even fewer. Over 1993, the number is expected to shrink still further to three or possibly only one, with Ukraine anticipated to leave the zone as well.

Adding to the turmoil, Grigory Yavlinsky, an architect of the ill-fated program for Russia's economic recovery, (prior to Gaidar) is reported to be implementing his own reforms in the Nizhi Novgorod Region, of the former USSR.

The highlights of his program are: first, privatization of municipal and departmental housing; second, utmost development of private enterprise and establishment of a free economic zone in the area; and third, indexation of incomes whereby wages and salaries will be raised to keep up with retail prices, and organization of "food" banks to amass money for the procurement of foodstuffs.

As confusing as the current changes appear to be, the earlier debate over markets the development of alternative reform programs was both perplexing and intriguing. As one is always reminded, by Soviet colleagues, economic reforms in the former Soviet Union are always accompanied by political intrigue. While this edited volume does not delve into the latter it does provide the reader with the best examples of the Soviet debate to transform the former Soviet economy to a market economy.

This volume begins with an article published in 1988 by Nikolai Shmelev entitled "New Anxieties," which surveys the economic problems in the early years of perestroika and outlines the upcoming problems facing the reform movement. This article has proven to be prophetic, in that the dangers to Gaidar's economic program in 1992 are the same as those facing the former Soviet Union in 1988. A further distinctive article is that by Abalkin entitled "The Market in a Socialist Economy." In this article Abalkin states that the goal of the then Soviet reformers was the development of a "socialist market" with limited government regulations. This article is followed by a roundtable discussion, organized by the economics journal EKO,(1) to discuss proposals to free-up consumer wholesale trade and developing local markets, and replacing the state supply system with financial transactions. In effect this discussion considered introducing money into the market.

With markets and money comes a debate over property rights. Here we see the first steps in an article by Vladimir Shkredov, who while admitting the need to have property rights comes short of accepting wholesale private ownership. The debate is joined by Nikiforov and Rutgaizer who advocate a compromise via leasing. The complexities of this debate are summarized in the next reading, a roundtable from the journal Kommunist.(2)

A pre-requisite to a movement to markets are a set of implemented price reforms. The debate over price reforms is outlined in an EKO roundtable discussion entitled "What Path Should We Take." This is followed by an article by Rutgaizer, Shmarov and Kirichenko and with an interview with the Chairman of the USSR State Committee for Prices and the Board Chairman of Gosbank. What is surprising is that they all agree with Western monetarist thinking that price inflation is a necessary tool for reducing what they consider is an excessive level of demand.

The next section concerns banking reforms. The first article, by Ignat'ev, notes quite clearly that there is no mid-course for the Soviet banking system. Ignat'ev advocates the creation of a banking system like that in Western market economies, with a two-tiered banking system, where a central bank's function is to lend to commercial banks.

The barriers to creating a market economy are best expressed by the articles of Ryvkina, Shmelev and a roundtable discussion in Voprosy ekonomiki.(3) The key issue is how does one balance economic reform with the unemployment which is bound to be a certain outcome. The editors choose to end the section with an article of Shmelev, in which he argues for the implementation of what he calls "commodity intervention" whereby individual savings are converted into goods and property so as to eliminate the need to use inflation as a mechanism to devalue the stock of household savings. If this solution is not adopted, in his view, the credibility of perestroika will be destroyed. In fact, Shmelev's suggestions were not adopted and today the former Soviet Union is experiencing a hyper-inflation of the Latin American variety, with a currency that is about to become good wallpaper.

1. EKO is published at the Academy of Sciences Siberian branch in Novosibirsk, the acclaimed birthplace of the current reform thinking.

2. Kommunist was the theoretical journal of the Communist party.