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Soviet Economics: Out With the Old And in With… What?

The Wall Street Journal
by Peter Gumbell
Staff Reporter of The Wall Street Journal
December 20, 1990

MOSCOW – Hidden behind a high concrete wall on the southern edge of Moscow is a cluster of dachas for the Russian government elite. Cooks serve up meals three times a day, while maids deliver wicker baskets of the best sausage, cheese and vodka for snacks. Chauffeur-driven black Volga sedans stand ready to whisk the pampered residents to town.

In this setting, far removed from the everyday miseries of Soviet life, Grigory Yavlinsky and his maverick brain trusters are preparing for the coming crash.

Until recently, Mr. Yavlinsky, a 38-year-old economist, was deputy prime minister of the Russian republic. He played an important role in drafting a radical program to create a market economy in the USSR. In just 500 days – only to have it rejected last October by President Michail Gorbachev, who ordered the plan in the first place.

Drafting a Rescue Plan

Now, Mr. Yavlinsky believes, it is Mr. Gorbachev who is in danger of being knocked flat by impeding economic disaster. Mr. Yavlinsky is convinced that misguided Kremlin policies will unleash a bout of hyperinflation in the next few months, brining the country to its knees. And when that happens, he and his brain trusters are determined to be ready with an economic plan.

For two days this month, Mr. Yavlinsky allowed a reporter to make an extraordinary visit to government dacha No 6, a green wooden cottage surrounded by pine and birch trees, to sit in on the deliberations. The group has been holed up in seclusion in this cottage for weeks, attempting to draft a package of laws on privatization that they hope will end the state's stranglehold on the economy.

The group knows that its chances for access, both economic and political, are slim. «The old methodology and the old approaches must change,» Mr. Yavlinsky says, «but nobody knows how to do it without force.»

Outsider With Connections

Following the rejection of his 500-days Plan, he decided his best shot would be to try to instigate change from the outside. So he resigned his government post and started work with his closer aides, all of them in their late 20s and early 30s.

Out of government, he still enjoys considerable authority. In part, this is because there are so few others who know enough about the economy to challenge him. Also, he maintains strong connections to Boris Yeltsin's cabinet in the Russia republic, where he so recently worked.

But the challenges facing Mr. Yavlinsky and his group are staggering: curbing the runaway budget deficit, regaining control of the money supply, and ending the waste dumppling Soviet industry.

Mr. Yavlinsky has yet to work out many details. But he knows the cure will require a full embrace of free markets - a transformation bound to be painful.

On one afternoon, he sits in the dacha's biggest room with colleagues working on the privatization law. The bill, which seeks to create attractive conditions for a flourishing private sector, is the culmination of two months work. The group is already on its ninth draft. But still they pick over every sentence, question every definition, a strange cross between the constitutional convention and a freshman economic class.

«If I buy a car from the government, is that privatization?» asks Sergei Ivanenko, a 30-year-old economist form Moscow university. «I think we must limit privatization to the means of production».

«But we're selling off a whole complex of property,» protests Alexei Mikhailov, a curly-haired specialist on finance. «Does the means of production include land? What about raw materials?»

«The means of production is the correct economic term,» insists Mikhail Zadornov, Mr. Yavlinsky's 27-year-old chief of staff, who scribbles down changes on strips of paper and sticks them over the old text.

«Is it the legal term?» wonders Mr. Ivanenko.

«Yes, yes», Mr. Yavlinsky insists. «It's the right economic term, and it's politically right too.»

«But we must explain what we mean,» says Mr. Ivanenko.

«All right, then, let's do that next,» Mr. Yavlinsly replies.

Listening to this exchange is Peter Derby, a 30-year-old American banker of Russian decent. He got involved with the group after impressing them with some legal documents he drafted for a Soviet-American joint venture. Ever since, he has helped out with questions of Western business practice.

He lugs a heavy volume of US business law around with him to help answer the numerous basic questions; such as the exact definition of a stock, and how the president of a company is chosen. «When you're building something you go down to the molecular level,» he says.

The group is looking to the West for more than advice. If and when their plans are adopted by the Soviet leadership, they hope the US and Europe will help to smooth a wrenching transaction by sending in massive shipments. Vladimir Grischenko, the group's agriculture expert, even talks of a new «Marshall Plan» to ensure big cities are provided with enough food while the system of collective farming is broken up.

By contrast, they fret that the aid now pouring in from the West is at best premature. «If anything is counterproductive,» says Tatyana Yarigina, the group's only woman and an expert on social issues. «The aid may just ease the pressure for real reform.»

Looking to the West is by no means universally accepted here, and Mr. Yavlinsky is sometimes criticized for his stance. But he is no stranger to controversy. An intense and quiet-spoken man with a mop of black hair, he worked in the coal industry for five years before moving to the State labour Committee. His career almost came to a halt in 1982, when he published a study that was deemed heretical. The death of Leonid Brezhnev in the middle of the controversy saved him, he now says.

Last year, he was picked by the Soviet government to join its economic reform committee, working alongside Leonid Abalkin, a deputy prime minister who had once been his economic professor. Mr. Yavlinsky disagreed with Mr. Abalkin's cautious approach and set about devising his own. Soon after, he quit the committee and joined Mr. Yeltsin's Russian cabinet.

His big chance came in August, when Mr. Gorbachev and Mr. Yeltsin ordered a small group of economists to produce an alternative to Mr. Abalkin's plans. Mr. Yavlinsky and his aids formed a core of that group, and 500-days program they produced closely resembled his own earlier blueprint.

At the dacha, the group's discussions frequently dwell on ways to overcome the fears of legislators about foreign capital, unemployment, private farming and other traditional taboos.

During the discussion on privatization, the group suddenly decides to insert a clause allowing the government to renationalize companies in case of emergencies. Mr. Derby, the American banker, protests against the idea and says that owners should at least receive compensation. he is quickly overruled.

«It's just our nonsensical ideology,» shrugs Mr. Mikhailov.

«It's no good writing in anything about compensation,» adds Mr. Ivanenko, standing on the balcony smoking a cigarette. «The state won't pay anything anyway».

Suddenly the phone rings. Mr. Yavlinsky runs out to answer it. He returns looking drawn. His nine-year-old son has been taken to hospital in town with a high temperature, but the doctors there say they have no room for him. They suggest he sleep in a corridor.

Mr. Yavlinsky fumes quietly for a while, and then plunges into a debate over what sectors of the economy should be exempted from the privatization bill. Several of his colleagues fret that their plans would run into a host of political obstacles if they tried to disband state monopolies on alcohol, schools and hospitals.

As the debate rages, Mr. Yavlinsky's personal experience with his son doesn't go unnoticed. Defending the need for private medicine, Mr. Mikhailov looks at Mr. Yavlisnlky and says wryly: «We hardly need better evidence that hospitals should be privatized first of all.»