Introduction

Poland and Hungary have committed themselves to a full marketization of the economy. The implementation of the commitment is in different stages in the two countries. Poland is trying to achieve this goal in a short period of time, whereas Hungary is following a policy of gradual change.

At the beginning of the 1980s in Poland and Hungary the market played only a subordinate role. Most reformers still believed that planning had to have a very important function in the economy; many believed that planning and market should complement each other in their functions as coordinating mechanisms. By the end of the 1980s, the situation had changed remarkably. Most reformers came to the conclusion that a market economy is the only way out of the economic crisis.

In this chapter I would like first to examine how the views on planning and market developed in the 1980s in Poland and Hungary, then to discuss the official proposals about the new role of planning and, finally, to express my own views about the possible functions of planning in a marketized economy.

Polish and Hungarian views at the beginning of the 1980s

The views of the Polish and Hungarian economists on the economic mechanism went through great changes in the 1980s. At the beginning of the 1980s (in Poland before the declaration of martial law) the vast majority of economists still believed in the reformability of the existing economic mechanism.

The moving target of economic reform

The ultimate model for the wave of economic reforms attempted in Central Eastern Europe over the last thirty-five years has been a moving target. At first, reform aimed at improving Soviet-type central planning, replacing central commands with contractual relations, using net value instead of gross physical indicators of enterprise performance, credit instead of budgetary grants, material incentives instead of campaigns, and gearing the system to some market signals, especially to world markets (e.g. Poland, 1956; USSR, 1965; Hungary, 1968; Czechoslovakia 1981).

In a second stage the target was a fuzzy notion of a radically new model, ‘market socialism’. Initially, there were talks of a ‘socialist market’, an expression coined by Gorbachev which was rightly criticized: ‘We want sausage’, said Gavril Popov, ‘not socialist sausage’ ‘A market is a market is a market’, added Czechoslovak Vice-Premier Valtr Komarek soon after coming to power. Clearly only the institutional environment in which markets operate, and the policies followed by governments, can be socialist or non-socialist, while markets cannot be so labelled; thus, there can be market socialism but not socialist markets. A ‘socialist’ market may be understood as an egalitarian market where participants have equal income and wealth and ‘vote by the ruble’ in a genuine economic democracy; however, money, unlike votes, can always be lent and borrowed, and the position of households and enterprises is in any case asymmetric; a market cannot be equalitarian; only policies can be equalitarian.

Introduction

Assume, following the Polish economist Leszek Balcerowicz (forth-coming), that ‘one can – somewhat pointedly ’ subsume the development of the concept of the reformed system in the countries of real socialism under the rubric “the imitation of capitalism under increasingly relaxed constraints’”. Balcerowicz merely outlines the idea in a few words, but one can well elaborate upon it. Using the vocabulary discussed below, it is possible to (1) start with the Kautsky-Lenin image of socialism as a ‘single [hierarchical] factory’, (2) proceed through simulated commodity markets in a ‘corporation’ model, into (3) real commodity markets and simulated capital markets in a ‘public sector’ model, and (4) finally accept the existence of personal capital owners, that is capitalism in a technical sense. From this perspective, as Balcerowicz points out, the final stage of reforming the centrally managed economy would, in fact, entail a return to capitalism. Practical reform economics would thus confirm the traditional Austrian assertion that exactly such a transition is in fact necessary for an effective ‘reform’ of the socialist economic system.

It is clear that we are currently witnessing a transformation of economic ‘reform’ into ‘transition’ in at least some of the East and Central European countries. In scholarly discourse, too, the Austrian argument has returned with a vengeance (Brus and Laski 1989; Kornai 1990a, b). More widely than ever before, the non-viability of socialism is taken as evident, all the more so after the popular revolutions of the autumn of 1989.

As a result of the annexations of Estonia by the Soviet Union in 1940 and 1944, a fundamentally new political and economic order was introduced. As in other parts of the Soviet Union the political system was dominated by the Communist Party and the system of Soviets. The economy was based on the Stalinist central planning system and the agriculture was collectivized. Gradually, Estonia also became an integral part of the all-union Soviet economy. During most of Estonia's independence period, the political and economic structures had to a large extent resembled that of the West European countries. The new social transformation was performed with extremely harsh methods, and the benefits of the reorganization were questioned by many Estonians from the outset. On the other hand, it was pointed out by the Soviet authorities that Estonia's economic development would prosper as a result of the integration into the Soviet economy. Also, the new system was said to be more advantageous for the working class which constituted a majority of the population.

During the Gorbachev era,-questions were more openly raised about the benefits of the social transformation inaugurated by the communists. In many cases, this development was considered detrimental to the social and economic performances of Estonia. In order to shed light on this problem, a comparative analysis will be carried out in this chapter, where the development of Estonia will be compared with other countries and the Soviet republics, and especially with its Northern neighbour, Finland.

Introduction

This chapter is a part of a long-term project investigating the interrelationship between economic reforms in the Soviet Union and changes in income inequality. It aims specifically to examine how the increasing role played by the market mechanism affects the pattern of income distribution in that country. This chapter, seen as a point of departure for this long-term project, sets out to analyze what the Soviet record is in the field of wage and income distribution during the last two to three decades. Such ‘stock taking’ is not only valuable in itself but is also a necessary first step towards the further investigation of the complex correlation between the marketization of the Soviet economy and changes in the inequality of income.

Statistical data about income distribution in the USSR were for many years a strongly guarded secret. Only occasionally have Soviet economists been allowed to reveal the ‘secret’ and published in the form of a ready statement the relative dispersion of wages and incomes, usually decile ratios, without giving the frequency distribution from where it was computed. According to N.E. Rabkina and N.M. Rimashevskaia, the decile ratios in the socialized sector were as follows:

1. 1964 – 3.69

2. 1966 – 3.26

3. 1968 – 2.83

4. 1972 – 3.10

5. 1976 – 3.35

6. 1981 – 3.00

Western economists, however, have been able, on the basis of the theoretical assumption that Soviet distribution of wages and family incomes are log-normal, to calculate the decile ratios and offer percentiles ratios without frequency distribution data.

The ten papers in this volume were originally presented at the Fourth World Congress for Soviet and East European Studies held at Harrogate Spa in England on 21–6 July, 1990, and this publication occurs under the auspices of the International Council for Soviet and East European Studies. The papers have been revised and updated to November 1990.

The autumn of 1989 was the time of the great East European revolutions, and in 1990 the European stage emerged completely transformed. Democracy had made a tremendous advance. For the first time, most of Eastern Europe experienced free and just political elections. A multitude of new parties, mostly with liberal, conservative or national connotations, made their entry into political life.

Economically, however, the year of 1990 will go down as one of the most miserable in terms of economic growth in East Europe, or East Central Europe as part of it is now called. On the one hand, there is a tremendous yearning for well-functioning market economies. On the other, the road to a free economy – to allude to Janos Kornai's recent book – seems paved with thorns as well as good intentions, and surely will not lead to heaven.

Currently, there is a broad conviction that only a restoration – or rather, new emergence – of fully-fledged capitalism can salvage the formerly socialist countries. This view stands in sharp contrast to previously prevailing ideas that market socialism was a real alternative and that the socialist countries would gradually marketize, while developing more social forms of ownership.

An examination of the restructuring of the industrial ministries since 1985 is an important aspect of any evaluation of current Soviet economic reform. The traditional ‘command-administrative’ functions and style of the ministries, which function as the ‘transmission belts’ for economic and administrative control between the centre and industrial enterprises, are clearly incompatible with the operation of the ‘socialist market’, the ostensible goal of economic reform. If the ministries are still operating in the same way as they have since the 1930s – whether because they are forced to by ‘objective circumstances’ or because they choose to for their own selfish bureaucratic reasons – we can safely assume that the reform has a long way to go.

There should be no need here to describe the long-standing ‘sins of the ministries’. They have been exhaustively described in the Soviet press in endless stories of bureaucratic misdeeds. Although they have been subjected to less detailed analysis in either the Western or Soviet literature than one might have expected, there are good and clear accounts of the phenomena of vedomstvennost' (usually translated as either sectionalism or departmentalism) and melochnaia opeka (petty tutelage). The first refers to the ministries' habit of protecting their own narrow interests at the cost of all others, including an obsession with autarchy and non-cooperation with other ministries. The second refers to their determination to closely control every detail of the activities of their subordinate enterprises.

Introduction

The USSR is in the process of deciding how to make and manage its transition to a market-type economy. With regard to employment and the labour market, this transition will mean the end of a system of guaranteed employment, as unprofitable enterprises are forced to close down, and others are no longer able to ‘hoard’ superfluous workers. For the first time, the Soviet Union is trying to come to terms with unemployment and define the forms and amount which already exist in the country. The legislation related to the economic reform is expected to include a new Employment Act, which will set out the type of provision to be made for anticipated large increases in unemployment.

How prepared is the Soviet Union to manage such changes in employment practices? How is reallocation to be achieved? Do incentives and mechanisms exist to facilitate job changes? Are new policies being designed to ensure a minimum social consensus for the economic changes envisaged and to protect certain sections of the population? Other East European countries are faced with similar problems, but the lessons for the Soviet Union from this quarter are limited, since, the scale and regional diversity of the Soviet labour market make it a special and more complex case.

The purpose of this paper is to trace changes in the system of economic policy-making in the Soviet Union from the summer of 1989 until October 1990. The emphasis will rest on the role of institutions and their interaction, but important individuals will also be highlighted. Our interest is in attempts at fundamental economic reform at the central level, elaborated by consecutive reform commissions of the USSR Council of Ministers. Agricultural reform will be by-passed as it has been discussed in other fora. Our current concern is to examine the institutions and people who make policy rather than what they decide. Thus, the substance of economic reform is not covered in this discussion.

First, the paper summarizes the system of economic policy-making established during the second half of 1985. Second, it proceeds to analyse the new economic and political setting that emerged from 1986 to 1989. Third, it presents a review of economic expertise. Finally, the main thrust of this chapter paper is a scrutiny of changes in economic policy-making in the Politburo and the Central Committee (CC) of the CPSU, the Government, the legislature, the Presidential Council, and the economic brain trust, as well as the role of Mikhail Gorbachev in 1989 and 1990.

The legacy of institutional changes since 1985

During the last four months of 1985, important personnel changes took place in the Soviet government, allowing it to expand its policy-making powers at the expense of the CC of the CPSU.

When this topic for the congress panel was proposed in 1987 I perceived it as a suggestion to reconsider the matter in connection with a new stage of economic reforms in the communist-ruled part of the world: a new stage both in terms of depth and width of the change – the first aspect represented by the clear radicalization of the reform concepts in such countries as Hungary and Poland, the second by the spread of reforms to the former primates of orthodoxy, in the first instance the Soviet Union. Yet, despite the significance of the new stage, it seemed that it was still the reformist context within which the problem was to be confronted. Now we find ourselves in a situation when the question is increasingly one not of reforming a socialist planned economy but of replacing it with a fully-fledged market system with ownership relations freely adjustable to secure its appropriate functioning (i.e. including predominance of private ownership of means of production should this prove to be the requirement). Some of the supporters of such a replacement refrain from calling the transformed system ‘capitalist’ (‘such as in the developed industrial countries’ is one of the preferred designations, sometimes coupled with declarations of the obsolescence of any sharp distinction between capitalism and socialism), and there is still strong adherence to the reform syndrome in the USSR, not to mention China.

The daily lives of most people are circumscribed by the locality in which they live. In some respects this may appear a strange observation. It is usual nowadays to think of people as members of a ‘global village’. The news media bring pictures of political happenings in other continents into our homes. Movements in the international economy render people unemployed in industries across the world. The structure of society is shaped by forces which have their origins outside the local arena and which regulate all countries within the same mode of economic organisation. International organisations, such as the European Economic Community, legislate across national boundaries. Meanwhile, within particular countries the State is increasingly able to surmount the resistance of local administration and customs. What are ostensibly local political events, such as elections for councils, are often heavily influenced by the conditions of national politics. Finally, populations are far more mobile than at any previous time and able, with greater affluence, to encounter a much wider range of experiences.

Yet, despite these often dramatic developments, the locality remains the arena within which most lives are conducted. The problems people face in their daily lives arise for the most part within the area in which they reside. They may be concerned with the quality of schooling for their children, the provision of hospital facilities within easy reach, the state of the roads, the need for a place of worship for a religious minority.

THE NATURE OF THE TOWN

This chapter is based on the analysis of data collected using a questionnaire very similar to that employed by the British Political Participation Study in its investigation of a number of British communities. The questionnaire was administered to a representative sample (N = 237) of residents in Mérignac, an urban commune forming part of the metropolitan area of Bordeaux.

This is a commune which today has more than 50,000 inhabitants. Its expansion is relatively recent as, in 1954, its population was only 23,000. This rose to 32,000 in 1962 and to 46,000 in 1968, increases that are mainly due to a movement in the population from the centre of Bordeaux to suburban residential areas. The commune has also taken in a number of new residents who have come from other parts in the département and from elsewhere in France. This explains why the proportion of adult inhabitants who have resided in the commune itself for more than 20 years is now less than half the total.

The breakdown by age of the population of Mérignac is quite close to the average for the nation as a whole. Natural growth is slight, because half the households have no children. Population density is also low, the area covered by the commune being very large; indeed, one of the largest in France. As a result there are only 1,100 inhabitants per square km, compared to the 5,100 we find in Bordeaux itself. A large section of it still consists of pine forests.