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For Soviet Reformers, the Peace Dividend Is Slow to Pay Off


ON Sept. 6, the men in charge of the Soviet Union's secret nuclear weapons laboratories, its tank factories, and its naval shipyards issued an unusual public appeal in the pages of the Communist Party daily Pravda. ``Esteemed Comrades,'' it began, ``We, the heads of associations, enterprises, and organizations in the defense complex, are worried by the country's grave economic and social situation, whose negative consequences are increasingly taking hold of our enterprises.''

This battle cry from the Soviet military-industrial complex was squarely aimed at the liberal economists and promoters of military reform who see the extensive conversion of the defense industry to peaceful uses as an absolute necessity.

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``For us, conversion is one of the central problems of transition to a market economy,'' says Stanislav Shatalin, an adviser to Soviet President Mikhail Gorbachev and the author of a radical economic reform plan.

Unless the enormous intellectual and material resources under the command of the military-industrial complex are freed, Mr. Shatalin and others argue, no market reform can succeed. Moreover, the defense industries are the backbone of the huge industrial ministries and the central planning apparatus which are the core of bureaucratic resistance to a market economy.

Indeed, the Pravda letter openly complained that market reforms had ``disrupted'' the nation's defense industry. ``Plan regulation of the economy has been destroyed;'' the defense sector's most skilled employees are leaving to work in more lucrative private business; suppliers are arbitrarily jacking up prices or demanding bribes to fulfill contracts.

At the same time, the Soviet defense industry is being subjected to ``destructive criticism.'' Can the Soviet Union tolerate this when the United States, Britain, and France continue to nurture their defense industry, the letter writers asked.

Resources must keep flowing to them and the ``centralized system of management'' must be maintained, the defense industry leaders demanded.

The stakes in this confrontation are enormous, not only politically but economically. Estimates of defense spending as a percentage of gross national product range from an official 9 percent to 25 percent, an estimate made by both Soviet and American economists. Officially, about 40 percent of all machinery production is said to be defense-related, but independent Soviet experts put it at 60 percent.

Radicals, including Russian leader Boris Yeltsin, demand a significant reduction in defense spending, by as much as 25 percent to start. While preserving the vital technologies and skills accumulated in the defense industry, rapid conversion should take place, they say, including freeing all but 20 percent to 30 percent of defense factories from state control.

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Conversion and reduction of defense spending are official state policy, declared by Mr. Gorbachev in a December 1988 speech to the United Nations.

An initial conversion program was announced and a long-term draft plan presented to a closed meeting of the President Council in late September. According to one of the authors, V.I. Smyslov, vice-chairman of the State Planning Commission (Gosplan), conversion will involve 400 factories under the control of defense-linked ministries and 100 enterprises from other ministries. For reasons unrelated to conversion, the Soviet defense industry has long produced civilian goods inside its defense plants, including all the television sets, radios, video-cassette recorders, cameras, sewing machines, and most of the tape recorders and vacuum cleaners produced in the Soviet Union. Under the draft plan, the total share of production devoted to consumer products will rise from 40 percent in 1988 to 60 percent by 1995.

Defense spending has been officially reduced for the last two years, from 77.9 billion rubles ($48.7 billion at the commercial exchange rate) in 1989, down 8 percent to 71 billion in 1990, and reduced further to 66.5 billion in a proposed 1991 budget. Defense production, under the draft plan, will be reduced 19 percent from 1991-1995.

These plans have been drawn up by the military-industrial complex itself. The conversion plan is the product of the Gosplan, the State Military-Industrial Commission that coordinates the nine defense-linked ministries, and the Ministry of Defense. The only outside body with oversight is the parliament's Committee on National Security, a 43-man group, most of whose members come from the military, the defense industry, or the KGB (Soviet secret police).

``You cannot imagine someone like the chairman of Northrop Corporation or General Dynamics heading a committee on military affairs in the US Congress, but that's our situation,'' says Alexei Izyumov, a security expert at the prestigious USA-Canada Institute. The committee and the public beyond are deprived of real information on the actual level of defense spending - even what weapons are being produced, the location of defense plants, or the number of their employees is still a secret.

The Committee on Science and Education of the Soviet parliament, drawing on liberal experts, estimates that defense spending is actually close to 200 billion rubles. The published figures are based on nominal ruble prices that significantly underprice military products and overprice the consumer goods made by defense plants, argues Mr. Izyumov.

MOREOVER, the official budget does not include all nuclear weapons spending, as well as other classified weapons production. The liberal daily Izvestia charged that 1991 defense spending would actually amount to 132 billion rubles once additions were made from other parts of the budget.

Even critics acknowledge, however, that some reductions in defense production have taken place. The most serious is at the big tank plants in the Urals, where almost half the number of tanks are now being built.

But, the critics charge, the draft conversion plan is far too limited in scale and aimed at preserving the control of the military-industrial complex.

``It's not conversion, but simply the creation of new industrial capacity within the structure of military industry,'' says Sergei Blagovolin, who heads military research at the powerful Imemo think tank. ``Military industry wants to control all possible production lines which would be converted into military production in a time of war or war preparation.''

Unless the factories are freed from central control to respond to real-market conditions, not to orders from above, there will be no actual transfer of resources to meet civilian needs, these critics say.

The draft plan poses a particular dilemma for Gorbachev, who is publicly committed to serious conversion but who finds the support of the conservative bureaucracy and the military increasingly necessary in his battle with rebellious nationalist movements in the Soviet republics.

When the Presidential Council met in late September, ``there was a clear split and fight between those who want real conversion and those who only want the title `conversion' and nothing more,'' says an informed source.

Alexander Yakovlev, the leading liberal voice among the president's advisers, attacked the low level of reduction in defense spending in the plan. Mr. Yakovlev told the meeting, the source recounted, ``that the real threat to the security of the country is the terrible situation in our economy, our aging industry, our obsolete technology - and not possible military actions from the West.'' Several others, including Yevgeny Primakov, supported him.

Gorbachev responded in typical compromising fashion.

``Gorbachev said that this plan is a serious step in the right direction, but there was a need to improve some points,'' the confidant reports. Gosplan officials say they are still working on the document.

But liberal experts believe Gorbachev gave a boost to the military-industrial complex when he opted for a more conservative economic reform plan later in October, rejecting the radical Shatalin plan.

``Gorbachev has ruined this package, because he didn't want to challenge his constituency in the bureaucracy,'' Izyumov says bitterly. Perestroika and the Red Army: a four-part series

Dec. 6 Battleground for reform Dec. 7 New look at doctrine Dec. 10 A professional army? Dec. 13 Conversion of defense industry to peaceful uses

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