ECONOMIC DEVELOPMENT IN THE SOVIET REPUBLICS, 1970-89

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 06296250
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 35
• Document Creation Date: March 8, 2023
• Document Release Date: August 13, 2019
• Case Number: F-2018-00127
• Publication Date: July 1, 1990

Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
- I W M OK
PAGE NUMBERS 241
Directorate of
Intelligence
rlf11 kift7 ttfFANT
IVU Mitwil
OR MARK ON
--CiiilfidentiaL_
0
Economic Development in the
Soviet Republics, 1970-89 (u)
A Research Paper
0079996
SGV*1 00 40*-9 0
SGVA 01 2 6*90
0405-0405
FILE CO/SOURCED COPY (A-2)
CPAS/IMC/ ( A� 1:0SWR,SOVA)
ROON
Li QS (NO ADI-10C REQUIREMENTS)
PROJECT NUMBER 50V * 612e q0
(
TOTAL NUMBER OF COPIES �17
DISSEM DATE V7TuLY go
EXTRA COPIES 1404, - 4430
RECORD CENTER 1131 - YgO
JOB NUMBER 1425 4E- otsy clo
Tonfidential_
SOV 90-10040
July 1990
Copy 405
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Warning Notice
Intelligence Sources
or Methods Involved
(WNINTEL)
National Security Unauthorized Disclosure
Information Subject to Criminal Sanctions
Dissemination Control
Abbreviations
NOFORN (NF) Not releasable to foreign nationals
NOCONTRACT (NC) Not releasable to contractors or contractor/consultants
PROPIN (PR)
Caution�proprietary information involved
ORCON (OC)
Dissemination and extraction of information
controlled by originator
REL...
WN
All material on this page
is Unclassified.
This information has been authorized for release,to...
WNINTEL�Intelligence sources or methods imiolved
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Directorate of
Intelligence
Economic Development in the
Soviet Republics, 1970-89 (u)
A Research Paper
(b)(3)
This paper was prepared by (b)(3)
Office of Soviet Analysis. Comments (b)(3)
and queries are welcome and may be directed to
the Chief, Economic Performance Division, SOYA,
(u) � (b)(3)
Reverse Blank Zarthefitiat
SOV 90-10040
July 1990
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
flL
Summary
Information available
as af 1 July 1990
was used in this report.
Economic Development in the
Soviet Republics, 1970-89 (u)
When Mikhail Gorbachev came to power in 1985, the Soviet republics
differed� greatly from each other in levels of economic development. During
Gorbachev's more than five years in office, the gap between the richer and
poorer republics increased as decentralizing economic reforms apparently
favored the economies of better developed regions.
The gap in economic development between Soviet republics resulted from
regional differences in natural resource endowments, uneven development,
and sharp differences in population growth. Despite an avowed goal of
diminishing regional economic disparities, Moscow's development policies
in practice also played a role in increasing the gap. A review of investment,
consumption, and government expenditures data by republic during the
period 1970-85 demonstrates that Moscow chose to pursue national
economic goals over regional parity, allocating resources where it believed
they could be most productively utilized and not in order to systematically
diminish economic disparities and deal with emerging regional economic
problems. Since 1985, the USSR's continuing economic slowdown, growing
energy requirements, and Gorbachev's economic policies have played an
increasingly important role in regional economic development:
� Demographic trends. Although population growth in much of the
industrial north has hovered at replacement levels, extremely rapid
population growth in the southern Muslim republics has made it more
difficult to improve levels of education and the quality and availability of
jobs, housing, and medical care.
� Economic slowdown. The decline in the rate of economic growth, which
began in the early 1970s, and the more recent burden of the budget
deficit have made Moscow reluctant to allocate resources to the less
productive, less developed regions.
� Energy needs. Increasing domestic energy requirements, the rising cost of
energy extraction, and the need for hard currency from fuel exports have
led Moscow to channel a growing share of investment into Siberia and
the Far East, to the detriment of economic development in other regions.
� Gorbachev's economic strategy. Many of Gorbachev's programs, such as
modernization, economic reform, and regional autonomy, have amounted
to a "wager on the strong," which has meant a continuing flow of
resources to the more developed republics.
111
-"Colrftdeatial�
soV 90-10040
July 1990
Approved for Release: 2019/07/30 C06296250
tanfideatial_
Approved for Release: 2019/07/30 C06296250
�C1nrfidentkiL
To gauge the growing development gap, we used a synthetic aggregate
measure developed by a leading US Sovietologist. This indicator, called
proxy GNP, combines data on investment, government expenditures, and
consumption of food, housing, education, and other social needs, covering
approximately four-fifths of what is included in national GNP accounts.
Although proxy GNP is incomplete, it is probably a good indicator of
changes in the relative economic standing of Soviet republics. According to
this measure, since 1970 the development gap between the northern and
southern republics has persisted and widened, and significant changes have
occurred in the positions of individual republics:
� �The Baltic republics lost their clear lead in some major economic
indicators over the RSFSR during the pre-Gorbachev era because of the
increasing priority given to energy resources and their own energy-poor
status. Nevertheless, Estonia, Latvia, and Lithuania maintained their
favored position among the peripheral republics, in part, because of their
relatively high labor productivity.
� The RSFSR benefited from the Soviet leadership's increased investment
in the energy and machine-building sectors and from the campaign to
modernize and expand existing facilities. Increased investment did not
always translate into higher living standards, however, and substantial
inequalities persisted within the republic, which includes some of the
richest and some of the poorest regions in the Soviet Union.
� Belorussia's and Moldavia's economies did well in the pre-Gorbachev
era, but, after 1985, while Belorussia continued to be favored in terms of
investment because of its well-diversified industrial base and faster
growing labor productivity, Moldavia, with an economy dominated by
agriculture and food processing, did not fare as well. Indeed, Moldavia's
vineyards and wineries were hard hit by Gorbachev's antialcohol cam-
paign, which seriously damaged the republic's economic growth.
� The Ukraine, once the country's key coal-producing region, suffered as
Moscow shifted investment toward other energy sources. Moreover,
fewer resources were spent on the social sector, resulting in growing
public discontent over pollution and the quality of life.
iv
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
-7.71Trfrflantin 1
� The three Caucasian republics, although following quite different pat-
terns of development, remained well below the national average in terms
of per capita investment and consumption during the pre-Gorbachev era;
after 1985 their economies lost further ground because of the antialcohol
campaign, the Armenian earthquake, and ethnic unrest.
� Central Asia's slow investment growth, low labor productivity, water
shortages, and rapid population growth conspired to keep it dead last in
economic development during the period 1970-89. The consequent
unemployment and poverty have been major catalysts for ethnic unrest.
These differences in the economic development of the republics are fueling
ethnic tensions and strengthening the centrifugal forces that threaten the
Soviet Union's continued existence as a multinational state. Gorbachev has
few promising options for narrowing the developmental gap. At a time
when increasing supplies of consumer goods and reducing the massive
budget deficit are the leadership's top economic priorities, expensive
regional development projects are beyond Moscow's means. Instead,
Gorbachev can look only to greater regional autonomy and increased
reliance on market forces as ways of encouraging and enabling the
republics to meet their own development needs. Such options, however, also
run the risk of strengthening the separatist tendencies Gorbachev is trying
to counter.
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Contents
Page
Summary
111
Scope Note ix
Republic Economic Development, 1970-85: Gorbachev's Inheritance 1
Investment 2
Consumption 5
Proxy GNP 7
Republic Economic Development, 1986-89: Gorbachev's Responsibility 7
Gorbachev's Policies 7
Development Trends 10
Republic Economic Development in the 1990s: 13
Gorbachev's Options
Greater Regional Autonomy 15
Greater Reliance on Market Forces 15
Implications of Gorbachev's Options 16
Appendix
Methodology for Calculating Proxy GNP 17
vii
-rditfrdentiaL
Approved for Release: 2019/07/30006296250
Approved for Release: 2019/07/30 C06296250
Scope Note
Note
The ethnic animosities and nationality unrest that currently confront the
Soviet leadership are rooted in political, economic, and social tensions of
long historical standing and great complexity and are best understood by
examining all their major causes. This Research Paper is intended to
contribute to such an understanding by examining one of the principal
sources of tension between nationalities: the uneven economic development
of the Soviet Union's republics. It reviews the major differences among the
republics with respect to the level and distribution of investment and the
consumption of goods and services in the years leading up to 1985, when
Gorbachev came to power. It then examines the impact of Gorbachev's
policies on these differences and the options the Soviet leadership has for
managing the republics' economic development in the 1990s.
To measure the differences in the economic development of the republics
over time, the paper relies on a miiture of Soviet investment statistics, CIA
estimates of consumption derived from Soviet statistics, and, a synthetic
measure�proxy GNP�developed by a leading US Sovietologist. Proxy
GNP, which is also derived from Soviet statistics, is designed to serve as a
surrogate for separate estimates of the GNP for each of the Soviet
republics. Proxy GNP covers approximately four-fifths of what is included
in national GNP accounts, Omitting items such as outlays for. municipal
services, inventory changes, and net exports, which we are currently unable
to allocate among the republics. Total defense expenditures for each of the
republics are also excluded from the measure, except to the extent that
these outlays are included in other categories such as investment for
research and development.
ix
Approved for for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Belorussian
S.S.R.
Moldavian
S.S.R.
Russian Soviet Federative Socialist Republic
Ukraini n (R.S.F.S.R.)
S.S.R.
Soviet Union
� Georgan
S.S.R.
. Armenian
� S.S12.
'Azerbaijan
� S.S:R.
111111111
Tajik
S.S.R.
Kirghiz
S.S.R.
0 500 1000 Kilometers
500 1000 Miles
The United States Government nos not recognized
the incorporation ot patents. Latvia, and Lithuania
into the Soviet Union.Sither boundary representation
is not necessarily authoritative.
Unclassified
taltdential�
719404 (800837) 7-90
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
��
Economic Development in the
Soviet Republics, 1970-89 (0
Republic Economic Development, 1970-85:1
Gorbachev's Inheritance
When Mikhail Gorbachev came to power in 1985, he
assumed command of a nation composed of 15 mem-
ber republics that shared a common economic system
but had vastly differing levels of economic
development:.
� The RSFSR was the largest and most powerful, but
not the most prosperous, of the republics. Its highly
industrialized European region had an old�and, in
some cases, antiquated�manufacturing base. The
Far East and its northern regions were the Soviet
Union's primary source of new deposits of energy
and raw materials, but living conditions there were
spartan, and development was hindered by high
transportation costs and the difficulty of attracting
and maintaining .a labor force.
� The Ukraine, a key agricultural region and a declin-
ing center of heavy industry and coal production,
had suffered from Moscow's shift in investment
away from coal and toward new sources of energy in
other republics. The dominance of energy-intensive
industries such as iron, steel, heavy engineering, and
chemicals had caused power shortages and severe
pollution in the densely populated region. The re-
public's manufacturing centers, like those of the
RSFSR, were badly in need of modernization.
� Belorussia's economy performed well, improving its
position significantly in relation to the rest of the
country given rapid growth in labor productivity
and investment and a diversified manufacturing.
base. Nevertheless, living standards in the republic
.did not catch up to those in the RSFSR and the
neighboring Baltic region.
'1970 was chosen as the starting point because the last major CIA
study on this topic focused on regional development in the 1960s.
0-0
1
� Improvement in Moldavia's economy was slower.
The republic remained a heavily agricultural econo-
my, similar to the rural areas of the Ukraine. Most
of its industry was devoted to the processing of farm
products and the production of wine.
� The Baltic region (Estonia, Latvia, and Lithuania)
was the most productive and prosperous area of the
Soviet Union, but living conditions had begun to
deteriorate amid concerns about overdevelopment,
pollution, and the influx of Russian workers.
� The republics of the Caucasus (Georgia, Armenia,
and Azerbaijan) fell between Central Asia and the
European regions of the north in terms of economic
development. Population growth in the Caucasus
was slower and industry more advanced than in
Central Asia, but the region was developing a
sizable unemployment problem.
� Central Asia (the Uzbek, Turkmen, Kirghiz, and
Tajik republics and the southern Kazakh republic)
had an economy dominated by cotton. Its rapidly
growing population shared many of the problems of
Third World countries�low levels of education,
poor public health standards, and unemployment�
which were perpetuated by relatively low rates of
investment. The northern Kazakh republic, a grain-
producing region with a largely Slavic population,
more closely resembled parts of the RSFSR than
Central Asia.
The primary reasons for these economic disparities
were unequal resource endowments and sharp region-
al variations in population growth rates. Soviet region-
al development policy reinforced these differences,
even though its stated goal was to' channel resources�
from the more to the less developed regions. While
TrAttlential-_
Approved for Release: 2019/07/30 C06296250
Tilt) ftdendal__
Approved for Release: 2019/07/30 C06296250
substantial progress was made toward equalization in
the early Soviet period, in the postwar era this goal
was superseded by other national priorities, including
reconstruction of war-devastated industries, modern-
ization of existing plant and equipment, the rapid
buildup of the defense sector, and increased energy
production. The marked slowdown in Soviet economic
growth in the 10 years before Gorbachev came to
power made resource allocation decisions even more
difficult.
The rigid, highly centralized Soviet system of eco-
nomic management also generally neglected regional
considerations in planning and resource decision mak-
ing. Central ministries directed most manufacturing
industries, while national and republic officials shared
responsibility for agriculture, light and food indus-
tries, and social infrastructure. Only enterprises that
produced goods for the local economy from local
resources were completely under republic authority.
As a result, factories were often built without regard
for the availability of local labor, without adequate
housing or social services for the work force they
attracted from other regions, and with little concern
for the environment.
A review of investment, consumption, and government
expenditure data by republics during 1970-85 demon-
strates that the regime chose to pursue national
economic goals over regional parity. Moscow allocat-
ed resources to where it believed they could be most
productively utilized and not in order to systematical-
ly diminish economic disparities and deal with emerg-
ing regional economic problems.
Investment
During 1970-85, for example, Moscow focused invest-
ment resources primarily on industrial modernization
and energy extraction and on those regions that could
best fulfill these national goals (see figure 1). Instead
of seeking to reduce economic differences among the
republics, central planners emphasized regional spe-
cialization and economic interdependence. As a result,
many parts of the country developed lopsided econo-
mies focused on one or two sectors. Moreover, periph-
eral republics became increasingly dependent on eco-
nomic ties to the rest of the country
The RSFSR. The RSFSR was the chief beneficiary of
this investment strategy, absorbing a somewhat larger
share of annual Soviet investment by 1985 than it had
in 1970 and taking the lead in per capita investment
away from the Baltic republics. The RSFSR's in-
creasing claim on investment resources resulted large-
ly from the Soviet Government's commitment to �
exploiting energy and mineral resources in the Far
East and Siberia and from the rising cost of energy
extraction. The RSFSR also benefited from the cam-
paign to shift investment from new construction to the
modernization and expansion of existing facilities
because much of the Soviet Union's manufacturing
base was located on its territory.
The Ukraine. Between 1976 and 1985 the Ukraine, an
aging manufacturing region with a diminishing re-
source base, experienced a larger decline in its share
of Soviet investment�from 16.1 percent to 14.0
percent�than any other Soviet republic. This de-
crease was due largely to the decline of coal, one of
the Ukraine's most important products, as a source of
Soviet energy. Coal accounted for 35.4 percent of
total Soviet energy production in 1970 and for only
22.8 percent in 1985. During the same period, the
shares of total Soviet investment going to Ukrainian
energy, chemicals, and petrochemicals, light and food
industries, and ferrous metallurgy declined as well.
The republic, however, retained a diversified industri-
al base with a growing emphasis on machine building.
Investment in the machinery sector increased as a
share of total investment in the Ukraine between 1970
and 1985.
Belorussia. In Belorussia, growth of per capita invest-
ment was rapid during 1971-85. Belorussia lacked its
own sources of energy and key raw materials for
industry, but its proximity to population centers in the
European USSR and Eastern Europe, well-developed
rail system, and relatively well-educated, productive
work force made it an attractive site for industrial
development, including enterprises producing small-
scale consumer goods, computers, and electronics.
2
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Confidential_
Figure 1
USSR Republics: Levels of Per Capita Investment,
1970 and 1985
Percent above or below
the USSR average
-60
1970
-40
1985
-20
0
20
40
RSFSR
Ukrainian SSR
Belorussian SSR
Moldavian SSR
The Baltic republics
Estonian SSR
. Latvian SSR
Lithuanian SSR
, �
I
The Caucasus
Georgian SSR
Armenian SSR
Azerbaijan SSR
_ � �.. '-' 0.7.7757:,; ,:::..._
FT
I: .�'.',,jtitiC.
II � ,
The Central Asian republics
Kazakh SSR
Uzbek SSR
Turkmen SSR
Kirghiz SSR
Tajik SSR
Pag
-;:eir",';'�'?
- '
f.
J
I
1'71 .---5Tf.gEtSi-ilikrifi'4,6,a,
�
i.,;=��-;:ii"'"' W 4-,,, r.'7
I
I
-60
-40
-20
0
20
40
Unclassified
327202 7-90
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Annual industrial output grew faster in Belorussia
than in any other republic due to rapid urbanization
as well as rapid growth in labor productivity and
investment, and the republic became a net exporter of
industrial products. Despite urbanization, Belorussia's
agricultural sector remained strong�the republic
continued to be a net exporter of key food products,
including meat, milk, eggs, flour, and potatoes.
Moldavia. In Moldavia, a densely populated region
where agriculture dominated the economy, per capita
investment was slightly lower than the national aver-
age. Investment funds were concentrated in the pro-
cessing of agricultural products, allowing the export
of significant amounts of sugar, vegetable oil, canned
fruits and vegetables, and wine to other republics.
Slow development in the industrial sector, however,
left the republic with too few jobs for its growing
population.
The Baltic Republics. The Baltic region, which had
the highest levels of per capita investment in the
Soviet Union in 1970, fell behind the RSFSR during
1971-85 due to the increasing priority given to energy
by Soviet planners and the regions' lack of significant
energy reserves. Nevertheless, with its ports, well-
educated work force, and strong work ethic, the Baltic
region continued to attract higher per capita invest-
ment than the other peripheral republics. Moreover,
rather than being concentrated in one or two sectors,
investment was targeted at a range of industries,
giving the region a manufacturing base that was
diversified by Soviet standards, with well-developed
consumer goods and electronics industries. The period
1970-85 also saw the development in the region of oil
shale mining and chemical plants based on local
deposits of potash, phosphates, and salt�industries
blamed by the local populace for high levels of
pollution
The Caucasus. Per capita investment in the Caucasus
as a whole remained well below the national average
during 1970-85. Investment growth in the region's
republics, however, varied greatly. Growth in invest-
ment was rapid in Georgia as the republic�which
had been a largely agricultural economy�experi-
enced impressive development of its industrial base.
In contrast, investment growth was low in Armenia,
where industry was already well established. Here,
funds were channeled into the expansion of more
advanced sectors of industry, particularly machine
building. Investment growth was also above average
in Azerbaijan, where the rising cost of extracting
Caspian oil soaked up funds. The republic's economy
remained relatively underdeveloped, however, and
investment focused overwhelmingly on agriculture
and energy.
Central Asia. Investment in Central Asia during
1970-85 did little to develop the region's manufactur-
ing base. Indeed, Central Asia fell further behind the
other republics in investment allocations during 1970-
85 in terms of per capita investment and its share of
total Soviet investment. These trends reflected a rate
of population growth roughly three times the national
average as well as Moscow's reluctance to commit
more resources to an area that offered poor returns on
investment�labor productivity in Central Asia was
the lowest in the country, and rampant corruption
among local officials regularly siphoned off funds.
Moscow-based ministries were also reluctant to build
new enterprises in the region because of the lack of
skilled labor, poor labor discipline, and low quality of
local production. As a result, these republics remained
largely colonial economies based on raw materials
and agriculture, primarily cotton in the south and
grain in northern Kazakh SSR. The dominance of
cotton in Uzbek, Turkmen, Kirghiz, and Tajik agri-
culture contributed to declining productivity and
growing environmental problems. Despite high levels
of investment in agriculture, increasing soil salinity
from poor irrigation methods, failure to improve
fertilizer and pesticide quality, and repeated plantings
of cotton on the same land reduced productivity.
Industrial development has focused on capital-intensive extractive
industries, including oil, gas, and nonferrous metals such as lead
and zinc ores, tungsten, and gold. (u)
4
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Consumption
The The gap in living standards among Soviet republics
widened during the period 1970-85 (see figure 2).
Republics with lower-than-average rates of population
growth and higher-than-average growth in invest-
ment�Georgia, the RSFSR, and Belorussia�were
able to spend more on social needs and made more
progress in improving living standards. Most of the
Muslim republics, in contrast, fell further behind the
national average because of population pressures,
growing problems in agriculture, and the small
amounts of spending allocated to social programs.
Despite these differences, living standards in most of
the country rose at a slow but steady rate during the
1970s. During the 1980s, however, most regions suf-
fered a slowdown in consumption growth, and bitter-
ness over economic inequalities magnified ethnic ten-
sions as people grew increasingly angry over
worsening shortages and lengthening queues. In the
Baltic republics, for example, the indigenous popula-
tion complained that Russian-dominated factories
were providing migrant workers from the RSFSR and
other regions with preferential access to housing and
other goods and services. In Armenia, Azerbaijan,
and Central Asia, a rapid rise in the number of young
people generated sharp competition among ethnic
groups for jobs, housing, and social services. Ethnic
rivalries also intensified as access to higher education
narrowed, unemployment grew, and housing short-
ages led to the emergence of shantytowns outside a
number of major cities.
The RSFSR. The Russian Republic as a whole im-
proved its living standard relative to other republics
during 1970-85, but substantial inequalities among its
regions persisted. Moscow and Leningrad had by far
the best access to housing, consumer goods, child care,
transportation, and cultural facilities because of their
political and economic clout and their status as -
showcases of Soviet life for Western tourists. On the
other hand, high investment in energy and raw mate-
rials extraction in Siberia and the Far East failed to
significantly improve living standards iii those hargh .
regions, where severe shortages of housing and ameni-
ties forced many to live in primitive conditions. The
non-Russian autonomous regions also had a standard
of living well below the RSFSR average.
5
Belorussia. Belorussia improved its overall economic
position during 1970-85 and was able to translate its
relatively good economic performance into higher
living standards. By 1985 rapid urbanization and
investment growth had helped push per capita con-
sumption in Belorussia above the national average.
(b)(3)
Moldavia. In Moldavia, where economic growth was
much slower, per capita consumption remained slight-
ly below the national average, although it improved
somewhat in relation to other republics. (b)(3)
(b)(3)
The Ukraine. The slowdown of investment in the
Ukraine during 1970-85 left fewer resources to devote
to the social sector. Over time, this development took
its toll on Ukrainian living standards. During 1970-
85, the Ukraine allotted only 27 to 28 percent of total
investment to housing, health, education, and other
social uses, as compared with 30 to 32 percent in the
RSFSR. By 1985, per capita consumption in the
republic was about 4 percent below the national
average.
(b)(3)
The Baltic Republics. By 1985, living standards in the
Baltic republics were still well above the Soviet
average, particularly in Estonia, but the size of the
Baltic advantage had diminished. Nevertheless, rela-
tively large investments in social infrastructure during
1970-85, allowed the Baltic republics to retain the
USSR's highest per capita levels of housing and other
services. (b)(3)
(b)(3)
The Caucasus. Trends in consumption varied greatly
among the Caucasian republics. During 1970-85,
Georgia enjoyed the greatest increase in its standard
of living of any of the Soviet republics due, in part, to
rapid urbanization. In Armenia, on the other hand,
higher population growth and low growth in invest-
ment for social uses resulted in below-average growth
in consumption.� Although per capita consumption
grew somewhat faster in Azerbaijan, the republic
remained near the bottom of the rankings among
See appendix, table 11. (u)
'See appendix, table 9. (u)
�CFR tildentiaL__
(b)(3)
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Figure 2
USSR Republics: Levels of Per Capita Consumption,
1970 and 1985
Percent above or below
the USSR average
-60
1970
-40
1985
-20
0
40
RSFSR
Ukrainian SSR
Belorussian SSR
Moldavian SSR
The Baltic republics
Estonian SSR
Latvian SSR
Lithuanian SSR
The Caucasus
Georgian SSR
Armenian SSR
Azerbaijan SSR
r------7
,
�I
r
The Central Asian republics
Kazakh SSR
Uzbek SSR
Turkmen SSR
Kirghiz SSR
Tajik SSR
I
I
-60
-40
-20
0
20
40
Unclassified
6
327203 7-90
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Soviet republics in terms of this and other quality-of-
life indicators. Azerbaijan's failure to gain ground on
the other republics was largely the result of higher-
than-average population growth in the republic com-
bined with extremely low investment for social uses.
Central Asia. During 1970-85, rapid population
growth, growing environmental problems, and low
investment in housing, schools, and hospitals took
their toll on living conditions in Central Asia.' This
poor status was reflected in indicators of health and
welfare:
� Infant mortality in some Central Asian republics in
1985 was double the USSR average.
� According to the Central Asian press, the incidence
of infectious and parasitic disease and the number
of congenital birth defects in the region rose during
1978-85.
� Educational levels and the quality of instruction in
Central Asia were the lowest in the country; schools
worked on two or three shifts and often lacked
plumbing and electricity.
� Per capita housing availability remained the lowest
in the country, and many homes lacked basic ameni-
ties.
Proxy GNP
To obtain an aggregate measure to gauge relative
levels of economic development among Soviet repub-
lics, a new indicator, proxy GNP, was constructed.
Proxy GNP, which includes data on investment,
government expenditures, and consumption of food,
housing, education, and other social needs, covers
approximately four-fifths of what is included in na-
tional GNP accounts.6 It omits items such as outlays
for municipal services, inventories, and net exports,
which we are currently unable to allocate among the
republics, and it does not include defense outlays�
except to the extent that they are covered in other
categories. Although the measure is incomplete, it
provides a reasonable surrogate for separate estimates
of GNP for the Soviet republics.
See appendix, tables 10 and 11 for data on infant mortality and
housing. (u)
See appendix for methodology used to calculate proxy GNP. (u)
7
Per capita proxy GNP is probably an adequate indica-
tor of the relative economic development of Soviet
republics. During 1970-85, there were dramatic
changes in this indicator for the republics, and the gap
between winners and losers widened (see figure 3):
� The position of the RSFSR improved in relation to
the rest of the USSR.
� Belorussia and Moldavia improved their positions
with respect to the national average, while the
Ukraine fell further behind.
� The Baltic republics, which had a clear advantage
in 1970, had lost their leading position to the
RSFSR by the 1980s.
� The position of two of the Caucasian republics,
Armenia and Azerbaijan, deteriorated, while the
position of Georgia improved.
� All of the Central Asian republics fell further
behind the national average.
Republic Economic Development, 1986-89:
Gorbachev's Responsibility
Gorbachev's Policies
Initially, Gorbachev did not make the reduction of
economic inequalities among the republics a policy
goal. Instead, he appeared to agree completely with
Premier Ryzhkov's comment in 1987 that republics
that "work better" should "live better" as well. In
keeping with this view, he urged the republics to take
responsibility for their own development rather than
wait for handouts from the center. Ethnic violence
fueled by unemployment subsequently led Gorbachev
to moderate this public stance and call for efforts to
narrow regional gaps in economic development. Nev-
ertheless, he has pursued a set of economic policies
that have clearly helped some republics more than
others and has imposed sacrifices on some while
leaving others unscathed.
Modernization. Gorbachev's industrial modernization
program, for example, has emphasized the renovation
and retooling of industrial capacity, particularly in
the machine-building sector. The inevitable result has
---ennfi tat& ji.11._
Approved for Release: 2019/07/30 C06296250
TorifideotiaL
Approved for Release: 2019/07/30 C06296250
Figure 3
USSR Republics: Levels of Per Capita Proxy GNP,
1970 and 1985
Percent above or below
the USSR average
1 1970 11985
-60 -40 -20 0 20 40
RSFSR
Ukrainian SSR
Belorussian SSR
Moldavian SSR
The Baltic republics
Estonian SSR
Latvian SSR
Lithuanian SSR
The Caucasus
Georgian SSR
Armenian SSR
Azerbaijan SSR
The Central Asian republics
Kazakh SSR
Uzbek SSR
Turkmen SSR
Kfughiz SSR
Tajik SSR
-60 -40 -20 0 20 40
Unclassified
327204 7-90
oTheriltdentiaL_ 8
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
-ZOltfidentia___
been to direct more resources to the central manufac-
turing regions and leave a smaller share of investment
funds for the development of Central Asia and much
of the Caucasus.' Republics such as the RSFSR have
received an increasing share of total industrial invest-
ment, while�despite rapid growth in its working-age
population and a growing need for jobs�Central
Asia's share of total industrial investment declined
slightly, from 12.2 percent in 1985 to 11.9 percent in
1988. From 1985 to 1987, moreover, investment in
machine building declined in all but one of the
Central Asian republics, as well as in Georgia and
Armenia�a reversal of the earlier trend.
The Antialcohol Campaign. The antialcohol cam-
paign of 1985-88 was another example of a Gorba-
chev policy that had a differing impact on the various
republics. Although doing little damage to production
activities in other regions, it disrupted trade, agricul-
ture, and industry in the wine-producing republics of
Azerbaijan, Moldavia, and Georgia. These three re-
publics, which account for half of Soviet grape pro-
duction, had experienced a "wine boom" in the 1970s,
when many wineries took advantage of high profits
and abundant raw materials to step up production of
cheap, low-grade wine. The sudden cutback in retail
trade orders in 1985 drastically reduced revenues for
many wineries, forcing them to borrow from the state
bank to meet wage bills and cover other costs. Repub-
lic tax revenues also fell as wineries turned unprofit-
able. Such revenue losses were especially costly to
Azerbaijan, which had funded half of its 3-billion-
ruble budget from winemaking profits before the
antialcohol campaign. The regime's recognition of
these and other unintended effects of the antialcohol
drive caused it to back away from the campaign in
1988. Still, much of the damage will take years to
correct, and some regions may never regain the
competitive advantage they once enjoyed in wine
production. In Azerbaijan alone, for example,
35 percent of vineyards covering 70,000 hectares
were uprooted during the height of the campaign.
Recovery has been complicated by continuing unrest.
' See appendix, table 3. (u)
9
Economic Reforms. The decentralizing economic re-
forms introduced under Gorbachev also seem to have
favored the economies of better developed regions.
Established industrial regions, for example, have en-
joyed a definite advantage under self-financing�a
system that requires enterprises to pay for their own
operations but allows them to keep a larger share of
their profits for worker bonuses and investment. In-
dustries in the more backward regions, on the other
hand, are generally at a disadvantage under the self-
financing system�largely because the existing pric-
ing system favors manufacturing and processing in-
dustries over mining and fuel extraction. According to (b)(3)
local officials, for example, there are almost no
industries with high profit margins in Central Asia.
Profitability also depends on the existing infrastruc-
ture of the region, access to supplies, and quality of
equipment, labor, and management�all of which are
better in the northern and western regions. (b)(3)
The Gorbachev-sponsored wage reform, introduced in
1987, has also benefited some republics more than
others. The reform was designed to raise the pay of
the most skilled and productive workers, particularly
those in more technologically advanced industries.
Under the terms of the reform, however, pay increases
have had to be financed by the enterprises themselves,
a stipulation that has encouraged them to lay off
excess workers. The most developed regions with
higher productivity and more advanced industries
have been better able to increase wages than the
southern republics. Thus far, wages have increased
most rapidly in Belorussia�which has the country's
fastest growing labor productivity�Latvia, the
RSFSR, and Lithuania. The smallest increases have
come in the Muslim republics, which, recognizing the
probable negative impact of the reform, were slow to
introduce it. According to the Soviet press, by May
1988 the share of workers on the new wage system
was only about 25 percent in Azerbaijan and Uzbeki-
stan, as compared with 98 percent in Estonia and 75
percent in Lithuania. Despite the slow implementa-
tion of wage reform, the fact that the measure
encourages enterprises to lay off excess labor and
mechanize manual jobs is reportedly exacerbating the
unemployment problem in Central Asia.
(b)(3)
(b)(3)
-CtrnfrdentiaL___
Approved for Release: 2019/07/30 C06296250
..�CO11111efi
Approved for Release: 2019/07/30 C06296250
The campaign to promote individual and cooperative
labor activity in order to increase consumer goods and
services has also reinforced regional economic in-
equalities because of regional differences in imple-
mentation. In particular, the Baltic republics�al-
ready among the USSR's most prosperous�have
taken advantage of privatization to a greater extent
than have other regions of the country. Although
employment in cooperatives still accounts for a small
percentage of the work force in these republics,
growth in the number and type of cooperatives has
been rapid, and public reception of increased private
activity has been positive. Increased privatization has
aroused resentment and suspicion in other parts of the
country, particularly in the Slavic republics and parts
of Central Asia. Rather than being welcomed for
providing much-needed goods and services, coopera-
tives are often criticized for high profits, price goug-
ing, and connections to organized crime. In Central
Asia, where private businesses are often run by non-
Muslim migrants from the Caucasus, the cooperative
movement has heightened interethnic rivalries. When
unrest broke out in Central Asia in June 1989,
cooperatives became the target of mob violence. Ac-
cording to Pravda, 17 cooperatives were destroyed in
the Turkmen city of Nebit-Dag, 11 were destroyed in
the Fergana Valley of the Uzbek SSR, and 27
cooperatives were destroyed and 11 cooperative work-
ers killed in the Kazakh town of Novyy Uzen'.
Development Trends
As a result of these policies, continuing differences in
population growth, and variations in the degree of
local ethnic and labor unrest, regional economic in-
equalities probably have increased overall during Gor-
bachev's tenure. In addition, the economic chaos
resulting from poorly conceived and poorly imple-
mented economic reforms, as well as from ethnic and
labor unrest, has resulted in a deterioration in living
conditions in some regions, which has probably
heightened discontent over economic inequalities. As
in earlier years, moreover, there have been notable
changes in the relative standings of republics within
both the richer and poorer groupings. Our estimates
of proxy GNP, which are available only through
1988, show that the RSFSR, Belorussia, Estonia,
Lithuania, and Kazakhstan increased their posi-
CoIfidential
tions in relation to the national average, while the rest
of the republics declined�the most marked declines
were in Armenia and Uzbekistan (see figure 4).
The RSFSR. The Russian Republic benefited during
1985-88 from increased investment in the energy and
machine-building sectors. Nevertheless, major eco-
nomic disparities within the republic continued to
have some impact on political tensions and relations
among ethnic groups. Russian nationalists, for exam-
ple, continued to have grounds for bitter complaints
about the poverty of the Russian heartland. Mean-
while, minorities complained about the backwardness
of the non-Russian regions. Glasnost has given many
of these minority groups more information with which
to argue that they are suffering from neglect because
of Russian economic planners. The chief of the
RSFSR State Planning Committee, for example,
recently admitted that the non-Russian regions, par-
ticularly the Yakut, Buryat, Tuva, Tatar, Bashkir,
and Komi Autonomous Republics, and the Khakass
and Gorno-Altay Autonomous Oblasts, have lagged
far behind the rest of the republic in terms of housing
and other social indicators. The Congress of People's
Deputies also has publicized the poor living conditions
of the small ethnic minorities of the northern RSFSR.
The Ukraine. Continued concentration of investment
in the Ukraine's traditional industries�metallurgy
and chemicals�and the rapid development of thermal
and nuclear power have resulted in growing public
discontent in the Soviet Union's second-most-popu-
lous republic. Local leaders, particularly after the
spring 1986 accident at the Chernobyl' nuclear power
station, have complained that environmentally dam-
aging, energy-intensive sectors are too dominant in
the Ukrainian economy�in fact, the region has be-
come a net importer of energy. Similarly, striking
miners in the Donetsk region in the summer of 1989
voiced the anger that many Ukrainians feel over the
poor living and working conditions in the polluted,
densely populated coal-mining regions
10
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Figure 4
USSR Republics: Levels of Per Capita Proxy GNP,
1985 and 1988
Percent above or below
the USSR average
-60
=
1985
-40
1988
-20
0
20
40
RSFSR
'
Ukrainian SSR
Belorussian SSR
Moldavian SSR
The Baltic republics
Estonian SSR
Latvian SSR
Lithuanian SSR
i
I
The Caucasus
Georgian SSR
Armenian SSR
Azerbaijan SSR
. ..
�
I
I'
The Central Asian republics
Kazakh SSR
Uzbek SSR
Turkmen SSR
Kirghiz SSR
Tajik SSR
I
�
I
.
I
I
-60
-40
-20
0
20 -
40
Unclassified
11
327205 7-90
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Belorussia. Under Gorbachev, the economy of Belo-
russia continued to do well, as compared with the rest
of the USSR: Belorussia rose above the national
average both in terms of per capita investment and
indicators of consumer welfare, including per capita
consumption of key food items. The accident at
Chernobyl', however, left a wide contamination zone
in the republic. According to the Soviet press, 70
percent of the territory affected by Chernobyl' is in
Belorussia. The local population has complained
about inadequate cleanup and resettlement and com-
pensation of victims. Approximately 90,000 to 94,000
people in Belorussia will need to be resettled by 1998.
Another 40,000 to 43,000 in the Ukraine and 50,000
to 80,000 in the RSFSR also await resettlement.
Moldavia. The destruction of vineyards and loss of
wine revenues in Moldavia contributed to economic
stagnation there during 1985-88. Investment in hous-
ing and social services, moreover, did not keep up with
the rate of urbanization. This was especially evident
in Kishinev, which experienced more rapid population
growth in the last decade than any other republic
capital. Despite this rapid growth and a growing
unemployment problem, the ethnic Moldavian popu-
lation has charged that enterprises under the jurisdic-
tion of central ministries continue to import skilled
labor from other republics.
Baltic Republics. Although the issues that have fu-
eled nationalist passions in the Baltic republics pre-
date Gorbachev and transcend narrow economic con-
cerns, economic developments during the Gorbachev
years have clearly complicated relations between
these republics and the center. The Baits derived some
benefit from their status as a testing ground for
perestroyka, but still complained that they were
unable to enjoy the full fruits of their labor. Estonian
nationalists, for example, have charged that, although
a Gorbachev-era experiment in light industry has
resulted in substantial quality improvements, most of
the superior goods produced have been shipped out of
their republic.
In addition, although the availability of consumer
goods and services in the Baltic republics, as com-
pared with other republics, has remained high during
Gorbachev's tenure, increased numbers of "food tour-
ists" from neighboring regions have poured in by bus-
and train-loads to buy food and consumer goods,
leading to an outcry among the ethnic Balts of
"plundering" by Russians and other outsiders.
The Caucasus. Since 1985 the economy of the Cauca-
sus has been shaken by the antialcohol campaign,
ethnic unrest, and the devastating earthquake in
Armenia. Cutbacks in wine production beginning in
1985 hit employment and farm earnings especially
hard in Azerbaijan, where a fourth of the agricultural
work force was employed in viticulture and winemak-
ing. Average daily earnings in Azerbaijan fell by 15.4
percent between 1985 and 1987 for both state and
collective farm workers, making Azerbaijan the only
Soviet republic to experience a substantial increase in
the gap between urban and rural incomes. This
decline in rural earnings probably increased rural
migration to cities such as Baku and Sumgait, accel-
erating the growth of shantytowns and social prob-
lems in these already overcrowded cities.
Ethnic unrest in all three Caucasian republics has had
a severe impact on the region's economy. Since the
late summer of 1989, for example, rail traffic in the
Caucasus has been disrupted by acts of sabotage and
threats of violence connected to the disputes over
Nagorno-Karabakh and Abkhaziya. An intermittent
rail blockade of Armenia by Azeris has resulted in
acute shortages of fuel, feed for livestock, food,
consumer goods, and raw materials. Most Armenian
enterprises had to slow or stop production last year
and harvesting was delayed by lack of fuel.
The Armenian earthquake of December 1988 also
dealt a severe blow to an economy already weakened
by unrest. The earthquake killed an estimated 25,000
people, left 500,000 homeless, and destroyed about 10
percent of Armenia's industrial base. An estimated 11
percent of Armenia's total housing was also de-
stroyed. Cleanup and recovery in the republic was
severely set back by the continued unrest. The rail
blockade delayed reconstruction in earthquake zones,
leaving thousands of earthquake victims in makeshift
housing
12
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
roilifrdentiaL
These problems have created an enormous refugee
problem. Soviet officials report over 200,000 refugees
in Armenia as of August 1989 and 160,000 refugees
in Azerbaijan as of late June 1989. At least 15,000
refugees have swelled the shantytowns of Baku and
Sumgait. Refugees have exacerbated the region's
already acute shortages of housing, schools, hospitals,
and jobs.
Central Asia. A lag in investment growth relative to
other regions and rapid population growth were the
major factors in the relative economic decline in most
of Central Asia during 1986-88. The populace's re-
sentment of the republic's failure to develop more
rapidly has evidently compounded resentment over
the problems associated with the cotton monoculture.
In the Uzbek Republic, for example, the share of total
land planted in cotton currently accounts for about
half of total sown acreage, while only 5 percent is
devoted to vegetables, potatoes, and melons. Opposi-
tion to the cotton monoculture has become a rallying
point for Central Asian nationalists, academics, and
writers. Informal groups such as the Uzbek Birlik
movement advocate a sharp cutback in cotton produc-
tion and a wholesale switch to the cultivation of more
fruits and vegetables. The first secretaries of the Tajik
and Uzbek Republics have formally requested reduc-
tions in the area sown to cotton in order to introduce
better crop rotation and devote more acreage to food
production.
The tightening food supplies resulting from increasing
population density and shortages of arable land and
water are also fueling rising regional prices in collec-
tive farm markets and cooperatives throughout Cen-
tral Asia. According to Soviet statistics, collective
farm market food prices rose 5.4 percent in the
Kazakh Republic and 8 percent in the Uzbek Repub-
lic in 1988, as compared with a 3-percent rise for the
Soviet Union as a whole. In the Fergana Valley of the
Uzbek SSR, prices rose even higher-14 percent in
the city of Fergana and 18.5 percent in Kokand. Both
cities were the scene of violent ethnic unrest in June
1989, which the authorities attributed, in part, to high
prices.
13
The combination of rapid population growth and slow
economic development has led to rising unemploy-
ment and poverty in Central Asia (see figure 5).
According to Soviet statistics, growth of working-age
population has significantly outpaced growth in so-
cialized employment since 1985. While some of the
surplus labor is employed in the private economy, the
Soviet press reports that unemployment has been
growing steadily-1 million unemployed have been
reported in the Uzbek Republic alone.
Republic Economic Development in the 1990s:
Gorbachev's Options
In 1990, after five years of perestroyka, the Soviet
Union has arrived at a crucial point in its history as a
multinational state. With Lithuania already declaring
independence, other republics moving to do the same,
and ethnic violence acute and widespread, the pros-
pects for political fragmentation are clearly increas-
ing, and Moscow has no obvious means of improving
its chances of maintaining control of the Soviet
republics.
Gorbachev's options for dealing with the economic
inequalities that are fueling tensions among the re-
publics are especially limited. At a time when reduc-
ing the enormous budget deficit and increasing sup-
plies of consumer goods have become top priorities of
the regime, expensive regional development projects
are luxuries Moscow cannot afford. As a result, the
traditional Soviet strategy of throwing resources at a
problem is no longer a viable option, and Gorbachev
must look instead to two approaches that may enable
him to get by on the cheap. The first, which is already
being pursued to some degree, is to leave the existing
economic system essentially intact but turn over
responsibility for most activities to the republics in
hope that their greater concern with local conditions
will translate into better economic performance. The
second option is to supplement greater republic eco-
nomic autonomy with price reforms and other mea-
sures that would facilitate the use of genuine market
forces to redirect the flow of resources.
"COVhientiaL
Approved for Release: 2019/07/30 C06296250
Zilt) frdentiaL
Approved for Release: 2019/07/30 C06296250
Figure 5
USSR Republics: Population Below the Poverty Line
in 1988 a
Percent of population earning less than 75 rubles per month
0 10 20
30 40 50 60 70
RSFSR
Ukrainian SSR
Belorussian SSR
Moldavian SSR
Estonian �SSR
Latvian SSR
Lithuanian SSR
Georgian SSR
Armenian SSR
Azerbaijan SSR
1
Kazakh SSR
Uzbek SSR
Turkmen SSR
Kirghiz SSR
Tajik SSR
0
10 20
a The official poverty line is 78 rubles per month.
30
40
50 60 70
Unclassifiefl
3272067-90
--eafidean:41. 14
Approved for Release: 2019/07/30 C06296250 _
Approved for Release: 2019/07/30 C06296250
Greater Regional Autonomy
Prompted by the growing difficulties of running an
increasingly complex economy from the center as well
as by pressure from the republics for more autonomy,
Moscow has begun to devolve economic decision
making to the regional level. A new law gives repub-
lics greater jurisdiction over agriculture and the social
sphere, including food production, light industry,
housing, and services,' but leaves control of monetary,
price, and wage policy in Moscow's hands. Heavy
industry, the extractive industries, national communi-
cations and transportation systems, and the defense
industries also remain under central control. Repub-
lics are to take on more of the burden of social
programs but would have a broader revenue base
because of increased latitude to tax the profits of all-
union enterprises. Beginning in January 1990, the
Baltics, Belorussia, and six territories within the
RSFSR switched over to a system of self-financing
following this plan. Other republics are scheduled to
transfer to self-financing by 1991
A special law passed in November 1989 that took
effect on 1 January 1990 gave the Baltic republics
more latitude in running their economies. It allowed
these republics to set up independent banks, create
financial markets, control prices and wages, and
introduce local currencies. The law, however, did not
give those republics exclusive ownership of their land
and natural resources as they had demanded, kept key
sectors of the economy under Moscow's control, and
bound the Baltic republics to state orders and depen-
dence on centrally allocated resources. Moreover,
when the Baltic republics attempted to exercise pow-
ers, such as price setting, supposedly given to them
under the law, they encountered resistance from
Moscow. Such difficulties have fueled secessionist
sympathies.
As Lithuania attempts to secede from the Soviet
Union and independence movements in other repub-
lics gain momentum, Moscow has stressed the eco-
nomic interdependence of Soviet republics and the
difficulties individual republics would have if they
attempt to stand alone. With its economic blockade of
Lithuania, Moscow attempted to drive home this
Formerly, jurisdiction over agriculture and the consumer sector
was shared by local and central authorities. (u)
15
point. Recently published Soviet data depict the ex-
tent of economic interdependencies among republics.9
For example, 1985 Soviet data show that only the
RSFSR, Kazakhstan, Azerbaijan, and Turkmeniya
were self-sufficient in energy. Republics such as
Moldavia and Lithuania, in contrast, were almost
entirely dependent on energy imports.
Although having some limited potential to enlist
greater assistance from the republics in addressing
economic problems, decentralization of economic de-
cision making will also make it more difficult for
Moscow to implement its economic policies. Decen-
tralization is already complicating the equitable dis-
tribution of food and consumer goods. Local officials
are erecting barriers between regions to protect their
own markets and consumers. K. Z. Terekh, USSR
Minister of Trade, has complained that "interrepublic
deliveries of goods are being torpedoed" and cited
several examples: Azerbaijan has refused to ship
2,000 tons of detergent, and the Ukraine has cut back
deliveries of toys to other republics. In the Baltic
republics and the city of Moscow, local governments
have enacted measures to allow only the local popula-
tion to purchase goods in short supply. In April of
1990, the Uzbek SSR announced that the export of
locally produced goods would be drastically reduced,
and the export of some fruits and vegetables would be
temporarily banned or limited. One Soviet commenta-
tor wrote that continuation of this trend "could lead
to 'customs wars' between cities and regions."
Greater Reliance on Market Forces
An important lesson to be learned from such problems
is that increased regional economic autonomy has
little to offer the republics unless it is accompanied by
measures to increase incentives to produce and sell
more and better goods and services. The reforms
required to accomplish this�which primarily involve
pricing and the privatization of economic activity�
may be especially painful for some republics. Ulti-
mately, however, such reforms are essential for all the
republics to overcome the waste and inefficiency that
constrain their economic development.
See appendix, table 12. (u)
Approved for Release: 2019/07/30 C06296250
-ZO'fffidentjtiA,
Approved for Release: 2019/07/30 C06296250
As Gorbachev and others in the leadership have come
to realize and acknowledge, price reform is necessary
to improve the efficiency with which resources are
used. Such a move is certain to have a major impact
on relations among the republics. The current system
of wholesale prices overvalues manufactured goods
and greatly undervalues raw materials and agricultur-
al products, thereby putting the less industrialized
republics of the south at a greater disadvantage
relative to the more industrialized republics of the
north and west. The proposed revision of wholesale
prices that is to be implemented in 1991 will reported-
ly double the prices of commodities such as oil and
natural gas. Average prices of ferrous and nonferrous
metals would increase by 71 percent and construction
materials 68 percent.
Price increases of this sort and scale would improve
the republic trade balance for republics in which fuel
production accounts for a large share of total industri-
al output�specifically, the RSFSR, the Ukraine,
Turkmeniya, and Azerbaijan. Energy-poor repub-
lics�most notably the Baltic region�would be ad-
versely affected by these price increases.� Similarly,
agricultural price hikes will boost earnings in repub-
lics such as Kazakhstan, Kirghiziya, Lithuania, Mol-
davia, Tajikistan, and Turkmeniya, where agriculture
accounts for more than 50 percent of total output.
Privatization is another measure that must be pursued
if the Soviet economy's prospects for recovery are to
be enhanced, and it is one that could have a major
impact on relative rates of economic development
among the Soviet republics. The experience of the
new cooperatives, as noted previously, has clearly
demonstrated that the republics differ substantially in
their support for legitimizing the activities of private
entrepreneurs in order to increase the availability and
the quality of goods and services. Prohibitive taxes
imposed on the new cooperatives in the RSFSR and
several Central Asian republics during the summer of
1989, for example, threatened to destroy the fledgling
businesses. Low tax rates on cooperatives in the Baltic
republics, on the other hand, encouraged the spread of
cooperatives there and enabled the new businesses to
See appendix, table 13. (u)
�COnftdentiaL
contribute to an improvement in local living standards
and to the smoother running of the state-controlled
enterprises to which they provided support.
In August 1989, the USSR Supreme Soviet decreased
the maximum tax rates but left the determination of
specific tax rates on different types of cooperative-
produced goods and services for the individual repub-
lics to decide. The center's willingness to devolve
responsibility for the taxation and regulation of the
new cooperatives may indicate that it would pursue a
similar approach to other forms of private economic
activity.
Implications of Gorbachev's Options
To note that privatization, price reform, and greater
regional autonomy will not necessarily reduce eco-
nomic inequalities among the Soviet republics�and
may even magnify these differences in some in-
stances�is not to suggest that these options should
not be pursued. On the contrary, although some
republics have clearly fared better than others under
the current economic system, all the republics have
suffered from the system's failings, and all are in need
of reform. To describe the limitations of these mea-
sures, however, is to emphasize the enormity of the
problems that have resulted from the long-term eco-
nomic policies Moscow has pursued and from the
deficiencies of the Soviet economic system. In the face
of such enormous problems, Gorbachev is unable to
promise the republics a steady�much less, quick�
improvement in their living standards or a narrowing
of their economic differences. Nor can he promise
that the sacrifices and hardships required to solve
these problems will be distributed evenly among the
republics. Instead, he can do little more than acknowl-
edge the problems and their causes and promise to
reduce the ineffective central controls that have done
so much to create the problems.
In our view, this approach entails a great risk of
encouraging the very separatist forces and tendencies
that Gorbachev is trying to counter. Gorbachev's
willingness to take this risk suggests, however, that he
sees no other way to deal with the problem and that
the continuation of Moscow's previous approach to
the economic development of the republics would be
an even riskier course.
16
Approved for Release: 2019/07/30006296250
Approved for Release: 2019/07/30 C06296250
N'firrnientjet.
Appendix
Methodology for Calculating
Proxy GNP
Proxy GNP is calculated by summing estimates for
consumption, investment, and government expendi-
tures during a given year for each of the republics:
� Consumption. CIA estimates rely on current ruble
estimates of total incomes supplemented by govern-
ment outlays on communal services adjusted to
remove nonconsumption expenditures�savings,
taxes, investment in private housing, and the gov-
ernment housing subsidy."
� Investment. Our data are the fixed capital invest-
ment entry for each republic from Narodnoye kho-
zyaystvo SSSR. This value accounts for 75 to 88
percent of total Soviet investment. Our estimates do
not make adjustments for net changes in livestock,
budget investment, uninstalled machinery, or inven-
tory changes.
� Government Expenditures. These include outlays
for administrative services (culture, general agricul-
tural programs, forestry, and government adminis-
tration), as well as research and development. Lack
of republic-level data precludes the inclusion of
municipal services such as police and fire protection,
inventory changes, and net exports. (u)
"See "Regional Living Standards," in I. S. Korepeckyj and
Gertrude E. Schroeder, eds., Economics of Soviet Regions, (New
York: Praeger, 1981, p. 129 (U)
17
Proxy GNP reflects the majority of outlays for goods
and services by all sectors of the economy�private
households, state production enterprises, collective
farms, and government administrative organization's.
Total defense expenditures for each of the republics'
are not included in the measure, except to the. extent
that these outlays are included in other categories
such as investment or research and development.
Proxy GNP data were deflated to account for infla-
tion in the Soviet economy since 1970. Data do not
allow for inclusion of the activities of the underground
economy in these estimates. The contribution of such
activities may differ considerably among republics. (u)
Approved for Release: 2019/07/30 C06296250
-ratradeutw_
Approved for Release: 2019/07/30 C06296250
Table 1
USSR Republics: Shares of Land, Population,
Investment, and Proxy GNP, 1970 and 1988
Percent
Land
Population
Investment
Proxy GNP
1970
1988
1970
1988
1970
1988
RSFSR
76.2
53.7
51.4
59.4
63.3
58.6
59.3
Ukrainian SSR
2.7
19.5
18.1
16.1
13.5
17.7
15.9
Belorussian SSR
0.9
3.7
3.6
3.3
3.5
3.4
3.6
Moldavian SSR
0.2
1.5
1.5
1.2
1.1
1.3
1.3
Baltic republics
Estonian SSR
0.2
0.6
0.6
0.7
0.6
0.7
0.7
Latvian SSR
0.3
1.0
0.9
1.1
0.9
1.2
1.0
Lithuanian SSR
0.3
1.3
1.3
1.4
1.5
1.5
1.5
Caucasus
Georgian SSR
0.3
1.9
1.9
1.4
1.4
1.6
1.8
Armenian SSR
0.1
1.0
1.2
1.0
0.7
0.9
0.9
Azerbaijan SSR
0.4
1.8
2.4
1.5
1.6
1.3
1.6
Central Asia
Kazakh SSR
12.1
5.4
5.8
6.6
6.0
5.
5.3
Uzbek SSR
2.0
5.0
6.9
3.8
3.5
3.7
4.2
Turkmen SSR
2.2
0.9
1.2
1.0
0.9
0.8
0.9
Kirghiz SSR
0.9
1.2
1.5
0.9
0.7
0.9
1.0
Tajik SSR
0.6
1.2
1.8
0.8
0.8
0.8
0.9
This table is Unclassified.
18
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Table 2
USSR Republics:
Population at Midyear a
Millions Table 3
USSR Republics: Levels of
Per Capita Investment
Index:USSR=I00
1970
1980
1985
1988
1970
1980
1985
1988
USSR
242.8
265.9
277.5
285.5
RSFSR
110.3
119.1
119.5
123.1
Ukrainian SSR
82.4
75.9
76.3
74.7
RSFSR
130.4
138.8
143.6
146.8
Belorussian SSR
88.1
86.4
94.4
99.2
Ukrainian SSR
47.3
50.4
51.0
51.6
Moldavian SSR
78.3
74.1
75.1
71.4 "
Belorussian SSR
9.0
9.6
10.0
10.2
Baltic republics
Moldavian SSR
3.6
4.0
4.1
4.3
Estonian SSR
125.7
110.2
111.7
107.0
Baltic republics
Latvian SSR
111.1
100.5
112.1
95.5
Estonian SSR
1.4
1.5
1.5
1.6
Lithuanian SSR
107.5
93.3
105.6
113.5
Latvian SSR
2.4
2.5
2.6
2.7
Caucasus
Lithuanian SSR
3.1
3.4
3.6
3.7
Georgian SSR
69.8
69.8
83.7
72.9
Caucasus
Armenian SSR
97.2
72.6
74.2
61.9
Georgian SSR
4.7
5.1
5.2
5.4
Azerbaijan SSR
79.3
64.6
77.3
65.1
Armenian SSR
2.5
3.1
3.3
3.3
Central Asia
Azerbaijan SSR
4.5
6.2
6.7
7.0
Kazakh SSR
123.1
107.4
101.8
103.3
Central Asia
Uzbek SSR
75.7
66.5
57.8
50.3
Kazakh SSR
13.0
15.0
16.0
16.5
Turkmen SSR
106.8
85.1
88.2
78.3
Uzbek SSR
12.1
16.0
18.2
19.7
Kirghiz SSR
72.0
54.4
53.3
48.5
Turkmen SSR
2.2
2.9
3.2
3.5
Tajik SSR
63.9
48.8
46.1
44.8
Kirghiz SSR
3.0
3.6
4.0
4.2
This table is Unclassified.
Tajik SSR
3.0.
4.0
4.6
5.0
a Because of rounding, totals may not add to figures shown.
This table is Unclassified.
19
Approved for Release: 2019/07/30 C06296250
�
---eaMtdeutk.d.,
Approved for Release: 2019/07/30 C06296250
Table 4
USSR Republics: Distribution of
Investment Among Sectors
of the Economy a
Percent Table 5
USSR Republics: Distribution of the
Labor Force, 1970 and 1985
1971-75
1981-85
RSFSR
Industry
39.3
39.3
Agriculture
11.7
11.6
Social sphere b
29.8
26.9
Other
19.2
22.1
Ukrainian, Belorussian, Moldavian SSRs
Industry
42.8
44.1
Agriculture
12.7
12.8
Social sphere b
25.9
25.3
Other
18.6
17.8
Baltic republics
Industry
29.9
33.0
Agriculture
22.4
17.6
Social sphere b
30.5
28.5
Other
17.2
20.9
Caucasus
Industry
37.0
39.9
Agriculture
17.7
18.8
Social sphere b
28.0
23.4
Other
17.2
17.9
Central Asia
Industry
30.5 '
32.3
Agriculture
26.1
27.3
Social sphere b
27.3
25.7
Other
16.1
14.7
a Because of rounding, totals may not add.
b Includes housing, science, culture, art, health, and communal
services.
This table is Unclassified.
Percent
Industry
Agriculture
1970
1985
1970
1985
USSR
26.7
27.1
29.5
22.3
RSFSR
30.7
30.2
23.6
17.5
Ukrainian SSR
24.7
28.1
35.5
24.8
Belorussian SSR
21.0
26.7
43.5
28.6
Moldavian SSR
15.3
20.1
45.6
34.4
Baltic republics
Estonian SSR
30.5
28.9
23.8
20.1
Latvian SSR
29.4
27.6
28.6
23.1
Lithuanian SSR
22.2
24.8
41.0
29.3
Caucasus
Georgian SSR
17.8
17.8
36.4
29.1
Armenian SSR
26.7
29.8
25.3
17.7
Azerbaijan SSR
17.3
16.6
36.1
32.2
Central Asia
Kazakh SSR
19.1
18.9
33.4
28.5
Uzbek SSR
14.0
14.7
42.9
35.1
Turkmen SSR
11.4
10.0
39.1
35.7
Kirghiz SSR
18.4
18.1
36.9
33.0
Tajik SSR
13.0
13.8
44.5
37.7
Source: Agricultural employment and total employment were esti-
mated according to methodology described in Ann Goodman,
Margaret Hughes, and Gertrude Schroeder, "Raising the Efficien-
cy of Soviet Farm Labor: Problems and Prospects," in US Con-
gress, Joint Economic Committee, Gorbachev's Economic Plans
(Washington: US Government Printing Office, 1987), Vol. 2,
p. 118.
This table is Unclassified.
tial 20
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Table 6
USSR Republics: Indexes of Labor
Productivity in Industry and
Agriculture
1970=100
Table 7
USSR Republics: Levels of
Per Capita Proxy GNP
USSR= 100
Industrial Labor
Agricultural Labor
1970
1980
1985
1988
Productivity a
Productivity (per man
hour) b
RSFSR
109.2
113.2
113.7
115.3
1980 1985
1988
1980 1985 1987c
Ukrainian SSR
91.0
86.4
88.6
�88.0
USSR
156 181
206
116 129 143'
Belorussian SSR
91.5
94.4
98.6
101.0 �
Moldavian SSR
84.6
87.9
88.7
88.1
RSFSR
158 185
212
113 132 147
Baltic republics
Ukrainian SSR
145 165
189
125 148 172 �
Estonian SSR
131.8
123.3
121.9
123.4
Belorussian SSR
179 217
260
126 168 209
Latvian SSR
120.2
110.4
112.3
108.9
Moldavian SSR
149 171
189.
140 148 166
Lithuanian SSR
114.0
108.0
109.7
113.6"
Baltic republics
Caucasus
Estonian SSR
162 185
209
157 161 177
Georgian SSR
82.9
86.8
95.7
95.0
Latvian SSR
156 184
214
126 153 171
Armenian SSR
89.7
81.9
81.1
75.5
Lithuanian SSR
157 187
214
125 165 188
Azerbaijan SSR
72.1
66.3
71.3
67.3
Caucasus
Central Asia
Georgian SSR
166 184
198
146 152 161
Kazakh SSR
98.6
93.4
91.3
92.6
Armenian SSR
153 176
190
128 144 134
Uzbek SSR
75.5
72.4
67.5
61.5
Azerbaijan SSR
172 198
206
162 166 145
Turkmen SSR
88.1
78.8
77.8
74.0
Central Asia
Kirghiz SSR
74.9
67.6
67.0
64.9 .
Kazakh SSR
139 153
172
114 104 116
Tajik SSR
65.0
57.7
55.4
52.9
Uzbek SSR
139 149
157
120 104-100
This table is Unclassified.
Turkmen SSR
136 141
156
103 94 104
Kirghiz SSR
143 169
186
103 94 106
Tajik SSR
129 134
143
117 102 99
a Narodnoye khozyaystvo SSSR 1980, p. 139, and 1988, P. 268.
b Narodnoye khozyaystvo SSSR 1985, p. 318, and Selskoye
khozyaystvo SSSR, p. 439.
cData for 1988 not available.
This table is Unclassified.
21
Con
Approved for Release: 2019/07/30 C06296250
Mtlend41_,
Approved for Release: 2019/07/30 C06296250
Table 8
USSR Republics: Levels of
Per Capita Consumption
USSR= 100
Table 9 Average annual percent
USSR Republics:
Growth in Per Capita Consumption
1970
1980
1985
1988
1971-80
1981-85
1986-88
RSFSR
106.9
109.2
109.5
110.3
USSR
2.4
0.7
0.4
Ukrainian SSR
96.5
92.3
96.0
96.5
Belorussian SSR
95.4
99.5
102.3
104.0
RSFSR
2.6
0.8
0.6
Moldavian SSR
90.7
97.2
98.1
100.0
Ukrainian SSR
2.0
1.5
0.6
Baltic republics
Belorussian SSR
2.8
1.3
1.0
Estonian SSR
135.6
131.2
128.9
134.9
Moldavian SSR
3.1
0.9
1.1
Latvian SSR
126.3
115.3
113.2
116.5
Baltic republics
Lithuanian SSR
119.9
116.2
113.2
115.9
Estonian SSR
2.1
0.4
1.9
Caucasus
Latvian SSR
1.5
0.3
1.4
Georgian SSR
88.8
94.0
102.6
108.4
Lithuanian SSR
2.1
0.2
1.2
Armenian SSR
86.2
85.1
83.6
81.2
Caucasus
Azerbaijan SSR
69.7
67.9
69.6
69.7
Georgian SSR
3.0
2.5
2.3
Central Asia
Armenian SSR
2.3
0.4
-0.6
Kazakh SSR
89.7
89.6
88.0
88.9
Azerbaijan SSR
2.1
1.2
0.4
Uzbek SSR
78.0
77.6
74.2
69.2
Central Asia
Turkmen SSR
82.0
78.1
74.8
74.6
Kazakh SSR
2.4
0.3
0.8
Kirghiz SSR
76.0
72.7
72.9
73.0
Uzbek SSR
2.4
-0.2
-1.8
Tajik SSR
66.5
62.6
60.3
57.7
Turkmen SSR
1.9
-0.2
0.3
Kirghiz SSR
2.0
0.8
0.4
This table is Unclassified.
Tajik SSR
1.7
0.1
-1.0 '
This table is Unclassified.
22
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
Table 10
USSR Republics: Infant Mortality a
Table 11
USSR Republics: Per Capita
Housing Space
Square meters
1970
1980
1985
1988
1980
1985
1988
USSR
25
27
26
25
USSR
13
15
16
RSFSR
23
22
21
19
RSFSR
13
15
16
Ukrainian SSR
17
17
16
14
Ukrainian SSR
15
16
17
Belorussian SSR
19
16
15
13
Belorussian SSR
14
16
17
Moldavian SSR
23
25
31
23
Moldavian SSR
15
16-
17
Baltic republics
Baltic republics
Estonian SSR
18
17
14
12
Estonian SSR
18
20
21
Latvian SSR
18
15
13
11
Latvian SSR
17
17
19
Lithuanian SSR
19
15
14
12
Lithuanian SSR
15
16
18
Caucasus
Caucasus
Georgian SSR
25
25
24
22
Georgian SSR
17
17
19
Armenian SSR
25
26
25
25
Armenian SSR
13
14
14
Azerbaijan SSR
35
30
30
27
Azerbaijan SSR
10
10
12
Central Asia
Central Asia
Kazakh SSR
26
33
30
29
Kazakh SSR
12
13
14
Uzbek SSR
31
47
45
43
Uzbek SSR
10
11
12
Turkmen SSR
46
54
52
53
Turkmen SSR
10
10
11
Kirghiz SSR
45
43
42
� 37
Kirghiz SSR
11
11
11
Tajik SSR
46
58
47
. 49
Tajik SSR
9
9
a Number of children dying before age 1 per 1,000 live births. The
Soviets use a different definition of a live birth from that accepted
by the World Health Organikation. Western experts estimate that
Soviet infant mortality statistics omit approximately 14 percent of
infant deaths that would be counted under the WHO definition.
Source: Narodnoye khozyaystvo SSSR, 1988.
This table is Unclassified.
23
Source: Narodnoye khozyaystvo SSSR, 1988.
This table is Unclassified.
Con tial
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
caltdeigiaL
Table 12
USSR Republics: Importance of
Interrepublic Trade
Share of Produc- Share of Consump-
tion Exported to tion Imported From
Other Republics Other Republics in
in 1988 1988
RSFSR 11 14
Ukrainian SSR 16 18
Belorussian SSR 27 26
Moldavian SSR 28 27
Baltic republics
Estonian SSR 25 29
Latvian SSR 24 27
Lithuanian SSR 24 27
Caucasus
Georgian SSR 26 27
Armenian SSR 28 29
Azerbaijan SSR 26 22
Central Asia
Kazakh SSR
12 20
Uzbek SSR
18 24
Turkmen SSR
22 25
Kirghiz SSR
21 28
Tajik SSR
21 29
Source: Vestnik statistiki, No. 3, March 1990, p. 36.
Table 13
USSR Republics: Projected Effect
of Wholesale Price Reform on
Republic Trade Balance .
Billion rubles
Change in Trade Balance b
RSFSR
16.6
Ukrainian SSR
�1.9
Belorussian SSR
�2.1
Moldavian SSR
�0.6
Baltic republics
Estonian SSR
�0.3
Latvian SSR
�0.5
Lithuanian SSR
�1.0
Caucasus
Georgian SSR
�0.4
Armenian SSR
0.5
Azerbaijan SSR
0
Central Asia
Kazakh SSR
�0.2
Uzbek SSR
�0.6
Turkmen SSR
0.5
Kirghiz SSR
�0.3
Tajik SSR
�0.2
a Based on the changes outlined in decree No. 741 of 14 July 1988
on the reform of wholesale prices.
b Positive = improvement, negative = deterioration.
This table is Unclassified. Source: Vestnik statistiki, No. 3, March 1990, p. 38.
This table is Unclassified.
24
Approved for Release: 2019/07/30 C06296250
Approved for Release: 2019/07/30 C06296250
0
oflfident
0 0
Approved for Release: 2019/07/30 C06296250