Republics Ill-Prepared for Solo Economies
As the Soviet Union's 15 republics move toward political sovereignty, decades of central planning have ensured that they are interdependent in every economic sphere, from energy to industry
AMBITIOUS in their political aspirations for independence, the breakaway Soviet republics are reluctantly recognizing the economic limitations to full autonomy.As the once all-powerful Soviet center dissolves, local leaders have been trying to literally capitalize on the long-repressed republic pride. Soviet President Mikhail Gorbachev's desperate pleas for some semblance of an economic union have been met by local leaders' calls for their own national currencies. Management over every aspect of the economy once held by the tight-fisted central government in Moscow - including budgets, money supply, trade, production and natural resources - is up for grabs by leaders in all 15 republics. Both Soviet and Western economists warn that a total break now from the giant, if tottering, Soviet economy would only leave individual republics scrambling for survival. Decades of Moscow's central planning have ensured that the republics are interdependent in every economic sphere: energy, food, consumer goods, light and heavy industry. The ailing Soviet economy would collapse without at least a central clearinghouse for production and distribution by republics, says Leonid Grigoriev, Soviet economist at Moscow's Institute of World Economy and International Relations. Mr. Grigoriev has spent the past several years doing economic plans for local republic leaders as well as for Mr. Gorbachev. He was a co-author of the controversial 500-day plan for Soviet economic reform announced last fall. Not one of the individual republics, no matter how mineral-rich or industrialized, can afford such a collapse of the larger economy as it embarks on its own, he says. The collapse of the Council for Mutual Economic Assistance (Comecon), which coordinated trade with former Soviet satellites in Eastern Europe, has made inter-republic barter trade even more crucial. Because Soviet agricultural and industrial production has been largely region-specific, individual republics are poorly diversified. With the exception of the food industry and machine-building and metalworking sectors - each present in almost all geographical areas - regions tend to be dominated by clusters of specialized manufacturing plants geared to the national market.
Regional interdependence Uzbekistan, for example, is the principal supplier of cotton to the Soviet Union. This so-called "cotton monoculture" leaves the republic vulnerable to blight and incapable of feeding, clothing, or housing itself. Opportunities for entering the global marketplace are few. Aside from certain raw materials, such as oil and natural gas, there is little that republics can now export internationally. Soviet manufactured goods are mostly sub-standard and probable losers in the highly competitive world market. Except for natural gas, the energy sector is degenerating. Severing links now means that the republics would be cut off from their automatic markets and suppliers. This would exacerbate economic troubles, says Matthew Sagers, senior economist at PlanEcon Inc. in Washington. Dr. Sagers says political changes in recent weeks will give economic restructuring a jump-start on the local republic level, but republics will need each other. Local leaders recognize the folly in now venturing out on their own and abandoning all former Soviet commercial ties. Highly indebted and cash-poor, these republics are now incapable of sustained self-sufficiency or financing economic reforms by themselves. "No one has any choice but to join an economic union of some sort," Mr. Grigoriev says. Last week there was an ironic twist in the union's disintegration. As the richest republics were busy forging new relationships with each other, the poorest declared their independence. Russia and the Ukraine, the two most populous and productive Soviet republics, agreed to establish new ties. Kazakhstan and Russia, the two largest republics in terms of territory, also pressed for a new economic union. The heavily subsidized Central Asian republics of Uzbekistan and Kirghizia announced their secession as a way of jockeying for a better economic position with the economically dominant Russian republic, Grigoriev says. "Republics, totally unprepared for economic independence, are taking advantage of the collapse of the center," agrees Jonathan Halperin, president of FYI Information Resources, based in Washington. Mr. Halperin's advisory firm is involved in the community of 500,000 independently operated businesses (not state-run) in the Soviet Union.
Nationalist divisions But links that bond the republics may be very difficult to forge, Grigoriev says. Political obstacles remain, including mistrust along ethnic and nationalist lines. "They remember who ate whose cow 500 years ago," he says. Grigoriev warns of strife in republics that have sizable Russian populations. "The Russians will go from being first-class citizens in a huge country to second-class status in a small country. They will not take that well." Among the first to suffer from the union's ongoing political breakdown will be the Central Asian republics, says Grigoriev. The predominantly Muslim and rural region, including Kazakhstan, Turkmenia, Uzbekistan, Kirghizia, and Tadzhikistan, received subsidies from Moscow-center at the expense of wealthier republics. Moscow's role as collector of national earnings and distributor of incomes has abruptly ended. Russia, the Ukraine, Georgia, Armenia, the Baltics, and other relatively well-heeled republics whose incomes were partly distributed to the nation's fund for Central Asian subsidies have ceased to be a ready source. "There will be a huge economic crisis for republics who received subsidies," Grigoriev says. If the breakaway republics defy economic cooperation, large portions of the Soviet landscape will turn from poorly diversified to dangerously deprived. Northern Russia and Siberia boast heavy industry, for example, but are almost wholly dependent on imports of consumer goods from other parts of the vast Russian territory and from other republics. If trade agreements are abrogated and the already unreliable transportation and communication links are weakened by the breakup, economic calamity will ensue, G rigoriev says.
Who'll pay the debts? Should the republics' separatists ultimately reject a union bound by a financial center, the collective liabilities of the 15 republics remain. In recent days Gorbachev pledged to calculate each republic's portion of the national budget in order to transfer the sums to the local level. Meanwhile, republics are demanding their fair share of the center's gold reserves. The amount of reserves - long a state secret - will soon be told. As important as doling out assets is the far more difficult task of apportioning the national hard-currency debt, estimated at $65 billion. "The distribution will be very complicated," Grigoriev says. The country's debts are spread among many kinds of creditors. "One country [republic] will owe debts to France and own assets in Ethiopia." The dire straits of the Soviet economy point to the republics' need to bond together. According to PlanEcon estimates, the Soviet gross national product fell by one tenth during the first half of this year, and foreign trade plummeted by 37 percent. Soviet oil and coal mining industries are atrophying due to the high cost and inefficiency of extracting oil and coal. The country's grain harvest is down by more than half.
Ukraine battered The most robust republics are in peril. The Ukraine, once called "the breadbasket of Europe," and "an economic powerhouse" has been reduced to a third-rate producer due to low worker incentive, agricultural inefficiencies, inadequate storage facilities, and poor transportation. Even without economic restructuring, high unemployment will soon occur, says Jay Mitchell, a PlanEcon economist. Inefficient factories will not survive without subsidies. Local political opposition can slow down the closure of the major employer in a town, he says, and delay reform. "The state-owned enterprises won't die so quickly because they have a lot of resources. Many giants live longer than they should because they have supplies, equipment, and money stashed away." If there is no safety net prepared for the unemployed, tensions will ignite, says Adrian Karatnycky of the AFL-CIO's international department in Washington. The Federation of Russian Independent Trade Unions, representing roughly 90 percent of the work force, or some 60 million workers, has long been in the communist grip. Hardliners will try to appeal to disenchanted workers, says Mr. Karatnycky, whose organization supports the independent Federation of Free Trade Union workers, with 60,000 members in the Soviet Union. The latter, he says "totally distrusts the center." In terms of wresting control from Moscow over local natural resources, the Russian and Ukrainian coal miners are the bedrock of the worker's reform movement. After a wave of carefully orchestrated and economically debilitating strikes, the coal miners won the transfer of mines from the center to the republics. The AFL-CIO promotes democratization of unionized labor there. Workers have found important common ground with independently operated enterprises, say Karatnycky and Halperin. Karatnycky says the unions have received financial contributions from the business community. "Historically, trade unions have been the mechanisms of control, not the voice of the workers," says Halperin. "The miners' strikes were an effective means of making a political statement - for more local control, freedom and rights, and management of local affairs. These are the same objectives of independent businesses - greater economic autonomy instead of politically dictated goals." As large manufacturing facilities go private, often at the urging of the workers, the two groups could form a powerfu l merger, Halperin says.
Banking system needed Before much more can develop on the local level, there need to be banks where "people can go for mortgages and companies for funds," Mr. Mitchell says. Without a viable banking system, "you almost put a noose around economic restructuring." Halperin says banking and other goals and instruments of reform will ultimately be coordinated among republics. "After a period of trial and error, the republics will cede back power to a central body which can better coordinate" the intricate trade and financial relationships, he says.