USSR REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89T00992R000100080001-7
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 40
• Document Creation Date: December 27, 2016
• Document Release Date: March 7, 2013
• Sequence Number: 1
• Publication Date: February 1, 1988
• Content Type: REPORT

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USSR Review
February 1988
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SOV UR 88-003X
February 1988
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USSR Review
The USSR Review is published by the Office of
Soviet Analysis. Comments and queries regarding the
articles are welcome. They may be directed to the
authors,
Reverse Blank Secret
SOV UR 88-003X
February 1988
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Contents
Page
1
The Soviet Union may be considering a major change in the
organization of its ground forces that could increase its army's
combat effectiveness and readiness, reduce manpower requirements,
ease force modernization, and affect its approach to new convention-
al arms control negotiations. The ongoing reorganization of the
Hungarian ground forces from divisions composed of regiments into
corps composed of brigades may indicate the direction the Soviets
will move their own forces.
iii Secret
SOV UR 88-003X
February 1988
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Gorbachev and the Nordics: Increasing Activism 9
on Regional Security Issues
In a speech in Murmansk in early October 1987, Soviet General
Secretary Gorbachev made a bid to fold the Nordic region into an
evolving Soviet approach to security that seeks to increase Soviet
influence in various world regions and to establish "zones of peace"
that disrupt existing Western security arrangements with regional
members. The Soviets seek to divert Nordic attention from Soviet
military forces in the region and to display sensitivity to Nordic
concerns-ultimately, to reduce NATO military activity and influ-
ence in northern Europe. From a broader foreign policy perspective,
Moscow is trying to demonstrate that it is an arctic-European-global
partner to be trusted in regional affairs as well as in larger security
matters.
Modernizing the Food-Processing Industry: An Essential 13
Step in Improving Food Supplies
General Secretary Gorbachev is under increasing pressure to show
results from his economic restructuring effort and believes that the
food problem is one that can and must be solved quickly. He
recognizes that success in this area will require modernizing the
entire farm-to-market chain and has launched an ambitious new
program to modernize and expand the food-processing industry. It is
unlikely, however, that the regime can achieve all that the program
sets out to do in the time allotted, given the many competing
demands for scarce resources and the persistence of problems in
sychronizing the activities of farms, procurement organizations,
transportation, and food-processing enterprises.
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The reform measures approved at the June 1987 plenum call for a
gradual transfer from an economic system based on centralized
supply allocation to a system based largely on wholesale trade.
Judging by past efforts to implement wholesale trade and the
problems encountered in 1987 during the first phase of this reform,
the transition will be difficult. Moreover, the fact that the transfer is
not scheduled for completion until 1992 will complicate progress in
other key reform areas. Gorbachev and reform economists have
admitted, for example, that self-financing, in particular, will not
Conference Report: "Trends in Gorbachev's Policy in the
Third World"
At an all-day conference sponsored by the Office of Soviet Analysis,
Regional Policy Division, several academics and the Deputy Assis-
tant Secretary of State for Intelligence and Research spoke on
Soviet political, economic, and military policies toward the Third
World and their implications for the United States. The speakers
discussed whether there is anything new in Gorbachev's "New
Thinking." They focused on how growing Soviet sophistication in
diplomatic and economic exchanges affects Soviet-Third World
relations, how the Soviets handle regional crises, and whether US-
Soviet relations play a role in Soviet activities in the Third World.
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Soviet Coal Industry: High-Stakes Debate
A Harbinger of Things To Come?
Self-Financing in Soviet Light Industry:
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Articles
Possible Reorganization of
the Soviet Ground Forces
Since the early 1980s there have been increasing
indications that the Soviets are searching for ways to
improve the organization of their ground forces for
combat. The pressures for change have been both
military (such as the increased probability of pro-
longed conventional warfare and its requirement for
effective combined-arms warfare) and nonmilitary
(such as economic and demographic constraints). At
the same time, the Soviets have advanced convention-
al arms control proposals that could influence the
future shape of their army.
we believe the Soviets are considering
an alternative organization for their ground forces.
This article is a preliminary effort to outline a possible
path of Soviet development.
Soviet Organizational Developments
The first indication of significant Soviet organization-
al developments was the formation of two new army
corps in 1982. The Soviets formed each of these units
by expanding a single division with additional equip-
ment and manpower. Composed of four maneuver
brigades-with infantry and tanks integrated at the
battalion level-and an air assault regiment, these
corps offered a balanced combined-arms force capa-
ble of more demanding missions than a standard
division. These units are well suited to act as front-
level operational maneuver groups designed to exploit
breakthroughs of NATO defensive lines-one of the
missions for which they are designed.
The Soviets may be having second thoughts about the
new army corps, however. The cost of forming the
new army corps, because of the considerable amount
of additional combat and service support equipment
required, may have inhibited the Soviets from consid- 25X1
ering the creation of additional units and may even
cause them to disestablish the existing ones.
the new army
corps in the Transbaikal Military District (MD) is
being reorganized, but we are uncertain what its
ultimate structure will be. The other new army corps
in the Belorussian MD is apparently unchanged.
There is some evidence that conversion of units to a
corps/brigade structure similar, but not identical, to
the new army corps may become more widespread
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(see table 1). a 25X1
battalion in the Group of Soviet Forces in Germany
(GSFG) has been reorganized and is now similar to 25X1
the combined-arms battalion in the new army corps.
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SOV UR 88-003X
February 1988
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Table 1
Soviet Combined-Arms Battalion
Structure
Tank Motorized Rifle
Battalion Battalion
Finally, a
, drawing on East
European contacts, and a Polish general officer speak-
ing to an attache source, have said that the Soviets are
planning to convert most of their ground forces to a
corps/brigade structure.
Another sign of Soviet interest in organizational
change is the possible formation of a uniquely orQa-
nized airborne unit in the Kiev MD.
The makeup of the unit
suggests that the Soviets may be considering the
formation of a brigade-sized airborne unit that would
be better suited for independent missions than would
a detached airborne regiment from an airborne divi-
sion.
Non-Soviet Warsaw Pact Formations
The entire Hungarian Army has already been con-
verted to a corps/brigade structure, and other Pact
countries may be considering similar reorganizations.
The Hungarian Army's one tank division and five
motorized rifle divisions have been converted into
three corps (see table 2). By mid-1987, elements from
two corps had participated in field exercises with
Soviet troops that were reviewed by Marshal Kulikov,
Commander in Chief of the Combined Armed Forces
of the Warsaw Pact. On 20 November the Hungarian
General Staff briefed the foreign attache community
in Budapest (including Warsaw Pact attaches) on the
broad outline and purpose of the reorganization.
In their unprecedented briefing, the Hungarians
claimed the reorganization had two chief motiva-
tions-to reduce headquarters personnel and to save
resources. Our independent evaluation,
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Cates that their primary interest was in reducing
requirements for the skilled officer cadre. Recent
Hungarian press articles have highlighted Hungary's
serious problems in attracting and retaining officers.
The reorganization of six divisions into three corps
resulted in a reduction of three division headquarters,
nine regimental, and 12 battalion headquarters-a
total of approximately 450 officers. Most of these
officer positions will be eliminated, although some
probably will be transferred to expanded brigade or
corps headquarters.
The reorganization also could improve combined-
arms capability. The Hungarians' two motorized rifle
and one tank corps are balanced combined-arms
formations with an almost equal mixture of tank and
infantry battalions. Although titled differently, the
tank and motorized rifle corps have essentially identi-
cal structures, only differing in one of 25 battalions.'
lems would also be eased because brigade command-
ers would be able to train more regularly with their
own assigned mixtures of infantry, tanks, and artil-
lery, instead of relying on temporary attachments
during large field exercises.
and Bulgarian ground forces are also considering
adopting the corps/brigade structure. A Polish gener-
a] officer stated that the Polish army is testing the
changes under way in Hungary and the Soviet Union,
and that, if the tests are successful, restructuring
would occur over the next 10 to 15 years. The US
' The motorized rifle corps has 13 motorized battalions and 12 tank
battalions, and the tank corps has 13 tank battalions and 12
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Table 2
Comparison of Division and Corps Organizations
Motorized Rifle
Division
Hungarian Army Corps Soviet New Army Corps
(Motorized Rifle) (Modified a)
a These figures represent a Soviet new army corps without the air
assault regiment.
that the Bulgari-
model in an effort to reduce the economic and
demographic demands of the Bulgarian Army.
the Hungarians
levels, if the combined-arms battalion structure is
adopted, without new investment in equipment. The
Soviets recognize the benefits of such a balance but
their experiments with larger new army corps have
required significant amounts of new equipment. The
Hungarian corps, without expensive units such as the
air assault regiment, may represent a compromise
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probably have undertaken their reorganization with
the approval of the Soviet General Staff. The Soviets
have always controlled the uniform military doctrine
and organization of the Warsaw Pact forces, except
for those of Romania. The Hungarian organization is
similar to the Soviet new army corps, and the changes
occurred when the Soviets may have just completed
their own experiments. The Hungarian corps is essen-
tially a Soviet new army corps without the air assault
regiment (approximately 2,000 men and 54 BMDs). It
also lacks some equipment, such as the SA-11 sur-
face-to-air missile brigade that the Hungarian army
does not have. An air assault regiment, with its large
number of expensive attack and transport helicopters,
could be attached as necessary or deferred as a long-
term development goal.
Soviet Motivations
Converting their army to a corps/brigade structure
could offer the Soviets a number of potential benefits.
Combined-arms capability and training could be im-
proved both at the corps/brigade and the battalion
between cost and capability.
Like the Hungarians, the Soviets would also benefit
from a reduction in the size of their officer corps.
this is an impor-
tant component of General Secretary Gorbachev's
perestroyka (restructuring) plans for the military.
Gorbachev reportedly believes that the Soviet army
has too many general officers in relation to its size
and has implied that cuts must be made to improve
efficiency. Reorganizing the Soviet army into a corps/
brigade structure would allow Gorbachev to reduce
the size of the officer corps without necessarily sacri-
ficing military capability. The changes would increase
demands on officers (from majors to one-star generals)
who would be required to command larger, more
complex combined-arms units. Soviet officer schools
and academies would have to improve officer training
to prepare officers, but the decreased size of the
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officer corps could allow the Soviets to concentrate on
training fewer but more skilled officers. The reduced
military requirement for officers would also increase
the pool of skilled personnel available to other sectors
of the Soviet economy-another important Gorbachev
objective.
A conversion to a corps/brigade structure, if it were
achieved by combining, rather than expanding, divi-
sions, would also raise peacetime manning levels
without increasing the number of active-duty soldiers
and thereby would increase the overall readiness of
the Soviet army. For example, the Hungarian reorga-
nization reduced wartime personnel slots by convert-
ing two motorized rifle divisions (MRDs) (28,000 men)
into one corps (17,000 men). Alternatively, such a
Soviet conversion could permit some outright reduc-
tions in peacetime enlisted strengths.
will keep the same
peacetime manpower but concentrate available long-
service manpower in two corps with a higher ratio of
peacetime to wartime manning than in the old divi-
sions, leaving the remaining corps as a low-strength
training unit.
Converting to a corps structure would also permit the
Soviets to reduce equipment requirements, allowing
faster modernization of the force. Smaller equipment
requirements would allow the Soviets to cut back on
the production of expensive items such as tanks. Such
a move would also permit the Soviets to pursue more
rapidly goals such as converting their entire force to
tracked infantry fighting vehicles, thereby dispensing
with lighter armed, wheeled armored personnel carri-
ers.
The Soviets would have to consider that reorganizing
a large part of their army could, in the short term,
seriously disrupt training and readiness.
Hungarian unease over the
disruption in training caused them to accelerate their
reorganization. Even if the Soviets reorganized their
units in a short period of time, the sheer size of the
Soviet army probably would entail disruptions lasting
for perhaps several years. While maximizing short-
term disruptions, such a simultaneous conversion
would avoid having a heterogeneous force for an
extended period. The Soviets might attempt to mini-
mize disruptions by first slowly reorganizing at the
battalion level and then merely reforming the battal-
ions into brigades and corps. The creation of air
defense battalions and a combined-arms battalion in
the GSFG and Soviet forces in Mongolia suggests the
Soviets may have already initiated such a plan.
Precedent suggests that the Soviets would prefer a
gradual reorganization schedule and that forces in
Eastern Europe and the western Soviet Union would
be the first to be reorganized. Gradual reorganization,
however, would prolong the disruption and extend the
changes for a period of up to a decade.
Outlook
At the cost of probably severe training disruptions in
the short-to-medium term, the reorganization of the
Soviet army to a corps/brigade structure would offer
potential benefits of improved combat capability,
smaller manpower requirements, improved readiness,
and cheaper force modernization. During the period
of reorganization, Soviet army readiness levels would
be depressed and overall combat capability would be
considerably lower than normal. The Soviets would
more readily consider reorganization if they perceived
a stable international environment, perhaps after, or
as part of, phased conventional arms control reduc-
tions in Central Europe.
The prospect of such a reorganization of the Soviet
ground forces may affect Soviet approaches to new
conventional arms control negotiations. The Soviets
may calculate that they can absorb substantial reduc-
tions, resulting in a more modern, capable, and
flexible force for operations against NATO. Such a
force, although smaller, would be able to use its
remaining equipment more efficiently than if no
reorganization had taken place. The Soviets may
therefore be willing to accept, or even unilaterally
conduct, asymmetrical reductions in conventional
forces.
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Gorbachev and the Nordics:
Increasing Activism on Regional
Security Issues
In a speech in Murmansk in October 1987, Soviet
General Secretary Gorbachev made a bid to fold the
Nordic region into an evolving Soviet approach to
security that seeks to increase Soviet influence in
various world regions and to establish "zones of
peace" that disrupt existing Western security ar-
rangements with regional members. The Soviets seek
to divert Nordic attention from Soviet military forces
in the region and to display sensitivity to Nordic
concerns-ultimately, to reduce NATO military ac-
tivity and influence in northern Europe. From a
broader foreign policy perspective, Moscow is trying
to demonstrate that it is an arctic-European-global
partner to be trusted in regional affairs as well as in
larger security matters.
Courting the Nordic Countries
The USSR under Gorbachev has pursued a more
activist economic policy in the Nordic region than in
the past. The Soviets have looked to the Nordic
countries, starting with Finland, as a testing ground
for a revamped approach to foreign trade that seeks
Western technology, management, and maintenance
know-how to assist in revitalizing the Soviet economy.
The "need for new forms of trade," in Soviet Prime
Minister Ryzhkov's words, has led the Soviets to
emphasize joint ventures with Nordic (and other
Western) governments.
The Soviet Union similarly has raised its diplomatic
profile in the Nordic region on security issues. The
Soviets' longstanding, largely passive support for a
Finnish proposal for a Nordic nuclear-weapons-free
zone has been converted to an active agenda for
regional security. The Soviet goal-a neutral region
with diminished NATO influence and activity-has
stayed the same, but the Soviet approach to attaining
it has become more sophisticated.
Several high-level Soviet visits to Nordic countries
during the past year, as well as increased working-
level exchanges, have focused attention on Gorba-
chev's security and economic interests in the Nordic
Soviet Military Actions Cited as Progress
in Nordic Security
Proposed Withdrawal of Submarines From the Baltic
Sea. The offer to withdraw ballistic missile subma-
rines from the Baltic Sea, first made by Colonel
General Chervov of the Soviet General Staff as early
as 1984, refers to six obsolescent G-II-class subma-
rines with a total of 18 single-warhead SS-N-5
submarine-launched ballistic missiles. Soviet Gener-
al Batenin recently confirmed to the press that the
Soviets will soon dismantle these submarines. F_
Dismantlement and Relocation of Missiles and
Launchers. Gorbachev at Murmansk cited the dis-
mantlement and relocation of nuclear missiles and
launchers as proof of Soviet good intentions in the
Nordic region. His reference concerns the deactiva-
tion of the two SS-5 intermediate-range ballistic
missile (IRBM) sites on the Kola Peninsula in early
1984 and a reduction (as of the date of these remarks)
to 72 ballistic missile launchers in the Baltic and
Leningrad Military Districts. These missiles were
replaced, however, by newer, more accurate, longer
range SS-20 IRBMs based farther south, in the
western USSR. An SS-12 Mod 2 short-range ballistic
missile brigade was moved from the Baltic Military
District to Eastern Europe in early 1984 in response
to the arrival of US Pershing-II and ground-launched
cruise missiles in Western Europe.
region. Soviet "Second Secretary" Ligachev's Decem-
ber 1986 visit to Helsinki featured a high-profile
announcement of Soviet actions taken in the spirit of a
nuclear-free north (see inset). The following month
Premier Ryzhkov traveled to Helsinki to promote
expanded Fenno-Soviet trade cooperation in the form
of joint ventures.
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In the months that have followed Gorbachev's Octo-
ber 1987 speech, the Soviets have sent several emis-
saries to Nordic capitals to reinforce the Murmansk
themes of regional economic, environmental, and se-
curity cooperation. The most significant of these visits
was Premier Ryzhkov's January 1988 trip to Sweden
and Norway, during which Ryzhkov sought to demon-
strate the new spirit of cooperation and flexibility in
Soviet Nordic policy.
Regional Objectives of Gorbachev's Nordic Policy
During the past few years the Soviets have sought to
project an image of sensitivity to Nordic concerns and
to bolster public confidence in peaceful Soviet inten-
tions. Moscow seeks to present cooperation with the
USSR as a positive alternative to what the Soviets
describe as the dangerous state of affairs in northern
Europe caused by increased military activity, and to
convince regional governments that the future lies in a
recognition of "the common security interests" of the
Nordic countries and the USSR. Gorbachev's Mur-
mansk speech, for example, conceptualizes the shared
history and interests of the arctic nations as an arctic
extension of the "common-European-home" theme
that he has enunciated on numerous occasions. Al-
though he expressly cited the USSR and Canada as
members of this family of northern nations, Gorba-
chev has not mentioned a room for the United States
(despite Alaska) in the arctic wing of the European
home.
Moscow has several specific nonsecurity interests in
the Nordic region (see inset). The Soviets want to
increase the number of joint ventures and generally
improve their trade position with regional govern-
ments. They also hope to use economic and environ-
mental proposals to open up discussions about securi-
ty. For example, Gorbachev's statement at Murmansk
that the Soviets might be willing to halt nuclear
testing on the arctic island of Novaya Zemlya-if a
nuclear testing agreement can be reached with the
United States-is couched in terms that address
Nordic environmental concerns. The offer shows the
paucity of lures available to the Soviets to attract
Nordic cooperation: other than some sharing of arctic
resource exploitation, an improvement in the Soviets'
Soviet-Nordic Nonsecurity Cooperation
Under Gorbachev
Finland. Three Fenno-Soviet joint ventures are in
progress, with several more being negotiated; the two
countries also recently renewed and slightly increased
the volume of their barter trade agreement and signed
accords dealing with space and notification of nuclear
accidents.
Sweden. The USSR and Sweden continue to discuss
joint ventures, although progress is slow. A compro-
mise over the longstanding Baltic Sea maritime
boundary dispute was reached in January 1988 dur-
ing Soviet Premier Ryzhkov's visit to Stockholm.
Norway. The Soviets and Norwegians are discussing
joint projects in oil exploration, .fishing, and mining;
a bilateral agreement on early warning of nuclear
accidents is scheduled to be initialed during Ryzh-
kov's January visit.
Denmark. The Soviets have approached the Danes
about several joint research and production projects;
bilateral negotiations are currently under way for the
joint production of soft drinks.
Iceland. The Soviet-Icelandic trade relationship cen-
ters around an exchange of Icelandic wool, fish, and
lamb for Soviet fuel products.
Canada. In addition to a five-year grain purchasing
agreement, the Soviets and Canadians have a joint
commission on agricultural cooperation. Joint ven-
tures in several industrial sectors have been discussed
at working levels, and negotiations are under way for
the joint production of a cross-country vehicle. F_
environmental record is one of Moscow's best regional
offerings. The Soviets also want to receive regional
(and global) credit for taking the lead in efforts to
limit nuclear testing.
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Gorbachev's security proposals seek to undermine
support for any NATO force modernization or for
increases in regional defense spending by speaking of
comprehensive, peaceful Soviet goals-"a radical re-
duction in the level of military confrontation in the
region," as he put it at Murmansk. The Soviets
present their ideas as the reactions of a concerned
regional member to what they characterize as provoc-
ative NATO developments. Examples of aggressive
NATO developments Gorbachev cited at Murmansk
include an allegedly illegal "new" US radar station in
Thule, Greenland, US cruise-missile testing in north-
ern Canada, increased NATO military presence in
Norway and Denmark, and the possibility of a new
post-INF threat posed by NATO sea- and air-
launched cruise missiles in the northern Atlantic.
Beyond the pursuit of arms control interests, Gorba-
chev at Murmansk sought to strengthen his image as
peacemaker for a broader West European audience.
Thus, in restating Soviet support for a Nordic nucle-
ar-weapons-free zone, he emphasized the Soviet role
in such a zone, hinting at the possible inclusion of
Soviet territory. Whether the Soviets would offer any
significant part of the Kola Peninsula is open to
question; without such an inclusion, however, it is
unlikely that Nordic governments will support the
Murmansk and Moscow's Broader European
Security Agenda
The Murmansk speech reflects a number of broader
Soviet security initiatives in Western Europe. Gorba-
chev's remarks are particularly calculated to support
Soviet arms control interests:
? His call for NATO-Warsaw Pact consultations on
"reducing military activity and limiting the scope of
activity of naval and air forces" specifically in
northern waters is a new twist on longstanding
Soviet efforts to include NATO air and naval forces
in arms control negotiations.'
proposals.'
? His support for notification and official observation
of major military exercises in the northern region
reflects Moscow's interest in using confidence-build-
ing measures to isolate and eventually limit NATO
military operations in the region. Gorbachev did not
indicate, however, which forces might be included
or the venue for probable future Warsaw Pact
is a possible forum for Soviet proposals.
3 According to reports from the US Embassy in Moscow, Soviet
European Security and Cooperation Department Chief Deryabin in
November 1987 stated in discussions with Nordic officials that a
follow-on to the Stockholm Conference on Disarmament in Europe
Europe (CDE), which concluded in 1986.
straints on naval and air operations in the 35-nation Conference on
Confidence- and Security-Building Measures and Disarmament in
development of such a zone.
Broader Soviet Foreign Policy Interests
Nordic regional initiatives are part of an emerging
pattern of a Soviet regional approach to security. Both
Gorbachev's Murmansk and Vladivostok (July 1986)
speeches are broad, high-profile pitches seeking to
promote regional discussions of security issues. The
Soviets have either proposed or taken on board pro-
posals for nuclear-free zones and other "zones of
peace" in several regions of the world; for example:
? Support for a joint West German Social Democratic
Party-East German Communist Party proposal for
a nuclear- and chemical-weapons-free corridor in
Central Europe.
? Increased interest in a Romanian proposal for a
Balkan nuclear- and chemical-weapons-free zone.
(NATO members Greece and Turkey are the only
Balkan countries that currently have nuclear weap-
ons on their territory.)
? Support for nuclear-free or peace zones in the
northern seas, the Indian Ocean, and the Mediterra-
nean-all regions with a significant US or NATO
naval presence.
? Increased support for the development of a South-
east Asian nuclear-weapons-free zone and a "South
Atlantic zone of peace." The Soviet Union is a
signatory to a protocol of the 1986 South Pacific
Nuclear-Free Zone-the only nuclear power apart
from the People's Republic of China to have done
so.
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The Soviets are emphasizing this regional approach to
security in hopes of making inroads, often at the
expense of the United States, to areas of the world in
which they have not previously played an active role
and to strengthen their position in regions with which
they already interact. The establishment of a nuclear-
weapons-free zone in the South Atlantic, for example,
would greatly complicate US bilateral military coop-
eration with regional governments.' Moreover, Mos-
cow probably hopes that support for such a zone will
also project a positive Soviet image and thereby
facilitate greater Soviet access to the region
Outlook
In the coming months, the Soviets will attempt to use
the achievements of Premier Ryzhkov's January visits
to Stockholm and Oslo both as proof of the dawning
of a new era in Soviet-Nordic relations and as an
incentive to regional governments to take additional
steps toward this cooperation in nonsecurity and
security matters! We believe that the Soviets are
likely to use several approaches to advance Gorba-
chev's proposals for the Nordic region. They will:
? Increasingly attempt to calm Nordic, and broader
West European, uncertainty about Soviet conven-
tional military capabilities and intentions in Europe.
Moscow is likely to highlight shared regional securi-
ty interests in an expansion of the European-home
theme, while decrying the alleged threat to Europe-
an security posed by NATO in the post-INF period.
? Probably broaden efforts to convince NATO mem-
bers Norway and Denmark that the future lies more
in Nordic-Soviet cooperation and less with their
present alliance affiliations. The Soviets probably
will continue and perhaps intensify initiatives to-
ward Greenland-stressing scientific, cultural, and
economic cooperation with the local population,
while criticizing the Thule radar installation as a
US provocation.
' US Navy port visits and joint naval exercises with Brazil might be
more difficult if a South Atlantic nuclear-weapons-free zone exist-
ed, for example, given the US policy of neither confirmin nor
denying the presence of nuclear weapons on US ships.
The USSR and Sweden reached a compromise agreement over the
long-disputed Baltic Sea boundary zone during Ryzhkov's visit. In
addition, Ryzhkov signed several bilateral accords on environmen-
tal protection, economic cooperation, and arctic research during the
? Continue to flatter Nordic governments with praise
about the historical importance of Helsinki, Stock-
holm, and Reykjavik in East-West detente and may
emphasize the unique standard that Nordic govern-
ments can set for future cooperation and develop-
ment in the European home.
? Keep pressing for joint development projects with
Nordic businesses. Soviet officials are likely to
pursue cooperative arctic development most enthusi-
astically with Canadian and Norwegian oil and gas
developers to gain their financial and technological
support.
? Probably seek to expand support by Pacific states
such as Japan for schemes to open up an arctic
shipping route between Europe and the Far East.
The Soviets probably will use these various avenues to
attempt to draw Nordic governments into a regional
security dialogue that may foreshadow Soviet initia-
tives toward the broader European region. Moscow
would want to use any progress in Soviet-Nordic
cooperation as an example to advance its policy efforts
elsewhere in Europe. Gorbachev is likely to cite
economic or security cooperation in the Nordic wing
of the European home, for example, to further engage
West Germany in those areas. Should Gorbachev
make a long-expected trip to Italy or Greece (or both)
in 1988, he might use the opportunity to confirm
Soviet support for regional peace zones and, specifi-
cally, for a Mediterranean peace zone.
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Modernizing the Food-Processing
Industry: An Essential Step in
Improving Food Supplies
Even more than his recent predecessors, General
Secretary Gorbachev places high priority on alleviat-
ing the Soviet Union's chronic food problem, and he
recognizes that success in this area will require mod-
ernizing the entire farm-to-market chain rather than
concentrating primarily on increasing agricultural
production. Efforts supposedly under way since the
late Brezhnev period to achieve balanced development
of the agroindustrial sector have met with little
success, but the recent announcement of a major plan
for improving food processing suggests growing lead-
ership commitment to remedial measures.' Judging
from the problems encountered during previous ef-
forts to improve food processing, however, significant
progress is by no means ensured.
An Old Problem and a New Program
The food-processing and distribution system is still
primitive by Western standards:
? Retail outlets still receive only 20 to 30 percent of
food products in prepackaged form. The shares of
meat, vegetable oil, milk, and eggs sold in prepack-
aged form did not change between 1980 and 1986.2
? Self-service markets accounted for only 42 percent
of 1986 sales in state retail food stores, up from 38
percent in 1980.
? The Soviets produce only small quantities of conve-
nience products such as frozen foods, boxed mixes,
and heat-and-serve items. According to one Soviet
official, only 25 percent of the 1986 plan for
production of frozen foods was fulfilled. Most food
items undergo only simple processing such as con-
centration, canning, or mixing.
' In Soviet usage, the food-production sector or "agroindustrial
complex" includes agriculture; organizations supplying goods and
services to agriculture such as fertilizer, machinery, repair, and
other services; procurement agencies; food-processing organiza-
tions; and trade organizations.
? Inadequate transportation and storage contribute to
the large losses of farm produce-20 to 30 per-
cent-that occur on the way to and through the
food-processing sector.
Gorbachev, under increasing pressure to show results
from his economic restructuring effort, believes that
the food problem is one that can and must be solved
quickly. He is aware that food supply problems are a
major source of consumer dissatisfaction and detract
from his effort to build public morale and mobilize
popular support for his economic reform initiatives.
He has called the problem more urgent than problems
in the machine-building sector, another area he has
targeted for greater attention.
Gorbachev is aware that large improvements in the
quality and variety of food products cannot be
achieved at reasonable cost unless major improve-
ments are made in the handling and processing of
agricultural products. He is fond of repeating that the
cost of eliminating losses through mishandling and
spoilage would be one-half to one-third of the cost of
obtaining the same supply through increased produc-
tion and has said that "it is nonsense to build up the
production of foodstuffs, incur huge expenses, and not
worry how the product is to be delivered to the
consumer's table." But, despite Gorbachev's emphasis
since the early 1980s on achieving a more balanced
development of the agroindustrial sector and the
introduction of some organizational changes, the gap
between the growth of agricultural output and the
facilities to handle and process it has widened.
The leadership now appears determined to rectify this
situation. A Central Committee conference in Octo-
ber 1987, at which both Gorbachev and Premier
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Ryzhkov spoke, unveiled an ambitious long-term pro-
gram to improve food storage, handling, and process-
ing, which is to involve a particularly large role for
defense-related industries. The leadership is seeking
to ensure priority for the program by nailing down the
necessary investment resources for the 13th Five-Year
Plan now, ahead of other civilian claimants-a tactic
used successfully by Brezhnev to gain priority for the
agricultural sector in the past.
Failure of Earlier Efforts To Reorder Priorities
The major goal of Brezhnev's 1982 Food Program
was to improve the efficiency of food production
through closer organizational integration of all
branches of the agroindustrial complex and the priori-
ty development of food processing. Gorbachev, who
was the party secretary responsible for agriculture at
the time, was the driving force behind the program's
investment strategy-concentrating resources where
they were likely to improve efficiency and reduce
waste.
After he was named General Secretary, Gorbachev
continued to emphasize the need to shift resources
from agricultural production to the handling and
processing sectors. In one of his earliest speeches,
Gorbachev charged that work in modernizing the
food-processing industry was lagging badly. He subse-
quently pushed through an upward revision of the
1986-90 plan for investment in this sector. At the
same time, Gorbachev sought to bolster his invest-
ment strategy through organizational means by merg-
ing many of the agriculture and food-processing min-
istries into one superministry, Gosagroprom. The
merger was intended to facilitate the redistribution of
resources within the agroindustrial sector and achieve
an integrated approach to the solution of the food
problem called for by the 1982 Food Program.
Two years into the 12th Five-Year Plan, however,
Gosagroprom is being criticized as a reorganization in
name only. Gorbachev's investment strategy has not
been implemented, and priority continues to go to the
agricultural sector (figure).
USSR: Investment in Agriculture
and Food Processing, 1980-86
I I I I
0 1980 81 82 83 84 85 86
a Includes machinery and nonresidential structures
used in farm production.
b Includes industrial food processing; excludes investment
in on-farm food-processing facilities.
Recent improvements in farm production have in-
creased the availability of raw materials for food
processing and have increasingly burdened the inade-
quate system for handling and processing farm prod-
ucts.' The failure of food handling and processing to
catch up with agriculture has meant that:
? Consumers have not realized full benefits from
recent improvements in farm production.
? Losses of farm products between the farm and retail
outlets may have increased. Soviet leaders admit
only that losses are still high.
' In a November speech in Bryansk oblast, for example, party
secretary Nikonov complained that growth in state procurements of
grain, sugarbeets, potatoes, and meat over the last 10 years in that
region was at least one-third faster than growth in processing
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? The proportion of farm products undergoing pro-
cessing, already low by Western standards, may
have fallen.
? Little or no progress has been made in reducing the
economic burden of the agroindustrial sector. Subsi-
dies to cover the difference between low retail food
prices and the cost of producing food products are
scheduled to rise in 1988.
The October 1987 Conference: Taking a Hard
Look at the Problem
At the October conference, Premier Ryzhkov present-
ed a scathing assessment of the current state of affairs
in the handling, storage, and processing of farm
products.
Misdirected Investment. Ryzhkov noted that the com-
missioning of new food-processing capacity fell sharp-
ly during the 11th Five-Year Plan and that the
situation was not improving in the current Five-Year
Plan. He also revealed that investment in the food-
processing sector in 1986 was less than in 1985 despite
the fact that the 12th Five-Year Plan called for a
large increase in investment-50 percent for food
processing as opposed to a 22-percent increase for the
entire agroindustrial sector.' Gosagroprom, which was
given control over all investment funds for agroin-
dustry, came under heavy fire for failing to rectify
"distortions in investment policy." Gosagroprom was,
among other things, accused of "flagrant disorganiza-
tion" in solving the storage problem and for squander-
ing scarce hard currency on expensive foreign food-
processing equipment only to let it sit and rust
because no coordinated plan for its installation had
been made.
Negligence of Regional Officials. Ryzhkov was partic-
ularly critical of officials at the regional level. As a
result of their negligence, he charged, "the two-year
program for the construction of processing enterprises
has been a failure." Ryzhkov charged that officials in
many areas had failed to make any provisions for
handling and processing of projected increases in farm
production. In Kazakhstan, for example, no new meat
processing capacity was commissioned during 1981-
85 despite the fact that purchases of meat by the state
were up by 10 percent over the previous five-year
period.
Inadequate Support From Machine-Building Indus-
tries. Ryzhkov charged that the Ministry of Machin-
ery for Light and Food Industry and Household
Appliances (Minlegpishchemash) is not adequately
supporting the food-processing industry. This ministry
now produces only one-fourth of the broad range of
equipment needed for modern food processing. More-
over, almost two-thirds of the machinery it delivers to
the food-processing industry does not meet modern
standards for productivity, reliability, or degree of
automation. Many machine-building enterprises were
built before the revolution and, according to Ryzhkov,
are "decrepit."
Reasons for the Dismal Showing. As Ryzhkov
stressed, the main reason for the lack of progress is
the "entrenched" view, which continues to dominate
the thinking of policymakers and managers alike, of
the handling and processing sector as a "secondary
sphere" of the economy-one to be funded by the
"left-over" method. The food-processing sector has
gotten short shrift in the allocation of resources
compared with both agriculture and the rest of indus-
try partly because the farm bureaucracy that grew so
large and powerful during the Brezhnev era has
successfully protected its hard-won priority and resist-
ed any effort to redistribute its resources in favor of
other sectors of the agroindustrial complex. Another
reason that the flow of resources continues to favor
the farm sector is that, despite the attempt to increase
the priority of the food-processing sector, the regime
continues to emphasize fulfillment of gross agricultur-
al output targets as the primary success indicator. It is
therefore not surprising that local officials, in particu-
lar, have continued to concentrate resources on in-
creasing farm production.
An Ambitious Program for 1988-95
The October conference laid out ambitious plans to
modernize and expand the food-processing industry.
By 1995 capacity for processing livestock products,
vegetable oil, and canned fruits and vegetables is to be
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expanded by 30 to 50 percent. By applying new
technology, the Soviets expect to obtain 40 percent
more processed food from the farm products now
going into the processing industry. Some 70 to 90
percent of food products are to be packaged by the
food-processing industry by 1990. Handling of farm
produce is to be further improved by more investment
in transportation and storage.
Reorganizing Machinery Production: A Statewide
Task. Ryzhkov laid out formidable tasks for produc-
ers of food-processing machinery. More than 3,000
items of new equipment must be manufactured each
year during 1988-90, compared with 130 to 160 items
at present. The effort to improve production of food-
processing machinery is to involve all sectors of the
economy, with an increased contribution from defense
industries. Apparently the Military Industrial Com-
mission (VPK), together with the Bureau for Ma-
chine-Building and Gosagroprom, has been given
responsibility for coordinating and controlling the
program.
the Ministry for Machine-Building for Food and
Light Industry and Household Appliances has been
disbanded and its enterprises shifted to the defense
industry sector.
This sector has been called upon to support consumer
programs in the past and was assigned a particularly
large role in carrying out the 1982 Food Program, but
this would appear to be the first time that the defense
industry sector has been drawn into the actual plan-
ning and monitoring of a consumer program. The
regime evidently hopes that the management exper-
tise concentrated in the defense-industrial sector and
the priority it commands over resources can be used to
achieve a more rapid development of the food-process-
ing sector than if the job is left entirely to the civilian
sector.
Stepping Up Investment in Food Processing. Ryzhkov
gave specific details for investment in the food-
processing industry during the 1988-95 period. Invest-
ment during 1988-90 is to be 26 billion rubles (8.7
' Ryzhkov did not mention the VPK by name. He referred only to
"The State Commission of the USSR Council of Ministers." We
assume that this is the VPK because it is never publicly identified
by name and because Yuriy Maslyukov, head of the VPK, was
billion rubles per year), rather than the original 12th
Five-Year Plan goal for 1986-90 of 39 billion rubles
(7.8 billion rubles per year). Accelerated investment
for the balance of the 1986-90 period suggests that
shortfalls of 1986-87 are being made up or that the
original 12th Five-Year Plan goal has been revised
upward. Investment in food processing is to be 51
billion rubles (10.2 billion rubles per year) during
1991-95.6 Between 1987 and 1995, deliveries of equip-
ment to food-processing plants are to nearly triple and
are to amount to 37 billion rubles during that period.
Ryzhkov noted that some 38,000 enterprises and
shops are due for modernization and that 29,000 new
production units must be built.
Importing Food-Processing Equipment. Soviet trade
statistics show that the USSR has stepped up imports
of food-processing equipment in recent years. Moscow
probably views imports as an important component of
the modernization drive and not as a substitute for
improving domestic machine building. The Soviets
may also be looking to Eastern Europe to supply more
food-processing and packaging equipment. Current
agreements call for Eastern Europe to focus its efforts
on developing equipment for processing meat, dairy
products, fruits, and vegetables.
The Soviets are apt to maintain or even expand
imports of food-processing equipment from the West,
which now supplies 20 percent of imports of food-
processing machinery. Imports of food-processing
equipment are only a small share of total equipment
imports and, given the current priority of this sector,
are not likely to be cut severely despite the decline in
hard currency earnings. Western equipment, which
now comes mainly from Western Europe, is valued for
its relatively advanced technology, high processing
capacity, and wide variety of specialized processing
lines.
6 Investment figures are difficult to interpret because in Soviet
usage "food processing" is not precisely defined. Discussions of the
agroindustrial complex often appear to use a broad definition of
food processing including on-farm food-processing facilities and
subsectors of industry producing (1) meat and dairy products, (2)
fish, (3) flour and mixed feed, (4) canned goods and other processed
foods, and (5) natural fiber products. On the other hand, industrial
investment data in the Soviet statistical handbook exclude on-farm
food processing and industrial processing of natural fiber.
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Oe% I et
The Soviets are trying to reduce the need for hard
currency purchases by using joint ventures with West-
ern firms to acquire advanced equipment. A 1987
agreement with an Italian firm provides for the joint
production of refrigerated-storage equipment.
Improving Transportation and Storage. Ryzhkov
called for a "fundamentally new standard" and "radi-
cal transformation" in storage and transportation.
Substantial progress in these areas would reduce
losses between farms and food-processing enterprises
and increase the supply of fresh produce-such as
fruits and vegetables-in retail outlets.
The October conference called for the shortage of
storage facilities to be completely eradicated within
the next two to three years. Soviet writers estimate
that present storage capacity is one-third of that
needed for potatoes and other vegetables and about
half of that needed for fruit. Refrigerated storage
capacity for perishables is in especially short supply.
The ambitious goal for increasing storage capacity is
probably out of reach but recent statistics on commis-
sionings suggest that some progress is being made.
Party secretary V. Nikonov noted that in 1986 the
annual plan to commission new storage facilities for
potatoes, vegetables, and fruit was fulfilled for the
first time in several years, even though these commis-
sionings amounted to less than 20 percent of those
called for in the 12th Five-Year Plan.' Furthermore,
the January-September plan fulfillment report implies
that commissionings in 1987 will be at least 10
percent above those of 1986. If commissionings grow
at this rate during 1988-90, 12th Five-Year Plan
targets for commissionings of potato, vegetable, and
fruit storage will be met.8
Ryzhkov's discussion of transportation focused on
containerization and technical progress in transporta-
tion equipment but ignored the inadequacy of the
rural road network-an important source of losses.
' Newly available statistics show that in 1986, nearly I million tons
of potato, fruit, and vegetable storage were commissioned-imply-
ing a 12th Five-Year Plan target of 6.2 million tons
' No data are available to assess the progress in constructing
storage capacity for other products or for refrigerated storage.
Newly available statistics on commissionings of paved
on-farm roads suggest slow progress. Soviet plans
called for over 90,000 kilometers of these roads to be
constructed during 1986-90. New statistics show that
in 1986 only 8,000 km of paved on-farm roads were
commissioned, less than half the annual total needed
to meet 1986-90 targets.'
Promoting Local Responsibility. The Gorbachev re-
gime is pursuing a policy that is intended to shift
responsibility for managing local food supplies onto
the shoulders of local officials and relieve Moscow of
those tasks that are best done at the local level. 25X1
Gorbachev hopes that this will force local officials to
focus on the end goal of getting more and better
quality food on the consumer's table in a timely and
efficient manner rather than focusing exclusively on
intermediate targets such as gross agricultural output.
Under measures introduced in 1986, regional officials
have been given broader authority to plan food pro-
duction, distribute the necessary resources, and adjust
prices. Within limits, local officials are being told that
it is now up to them to solve the food problem in their
area. Overall results thus far have been extremely
disappointing, but in a few regions the new system has
begun to take hold and better coordination of the
farm-to-market chain at the local level has been
achieved."
Potential Problems
To substantially increase quantities and broaden the
assortment of quality foods in state retail stores would
require successful implementation of the new pro-
gram. A number of problems, however, threaten to
slow the pace of implementation:
? The especially poor performance of the civilian
machine-building industry in 1987 is likely to cause
shortages of investment goods over the next year or
two, thus slowing all facets of Gorbachev's modern-
ization program. In addition, energy production,
9 No data are available to assess the status of plans to construct
farm-to-market roads-the other component of the rural road
network.
'? At an obkom plenum in Belgorod, for example, speakers pointed
out that in 1987 for the first time "some of the above-plan
agricultural output was used to satisfy the oblast market in 25X1
accordance with the (March 1987) government decision." Speakers 25X1
noted that, as a result, food supplies were better than those of most
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JCCI Cl
which becomes more costly every year, is likely to
compete with food processing for available investment
resources.
? Soviet central authorities will find it more difficult
to ensure and monitor investment in food-processing
machine building now that funds are to be allocated
through ministries whose main responsibility is pro-
duction of other products.
? New food-processing equipment, particularly im-
ported equipment, will not be productive if agricul-
ture continues to deliver raw materials that contain
excessive dirt, field trash, and material that has
deteriorated in transit.
? Industry must supply vastly increased quantities of
packaging materials and food preservatives. Both
are now in very short supply.
? Additional investment will be needed for moderniz-
ing retail food outlets if they are to handle increased
quantities of new products, such as frozen foods,
successfully.
Prospects
The regime's present attention to the food-processing
sector is a promising sign. Singling out this sector in a
separate program could bring more progress than
earlier efforts did, and Gorbachev's program contains
some new wrinkles that could make it more viable
than previous ones-such as greater assistance from
the defense industry for food processing. It is unlikely,
however, that the regime can achieve all that the
program sets out to do in the time allotted. Even
substantial progress is in doubt, given the many
competing demands for scarce resources and the
persistence of problems in synchronizing the activities
of farms, procurement organizations, transportation,
and processing enterprises. To raise the priority of this
sector enough to secure resources will require great
political will on the part of the leadership. The
earmarking of investment funds for handling of farm
products, storage, and processing ahead of other
civilian claimants-including agriculture-under-
scores the leadership's determination to give priority
to development of this sector. The test will come,
however, when detailed annual investment plans are
being drawn up and intentions must be backed up
with necessary resources.)
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.7ecrel
A Modest Start
The economic reforms approved at the June 1987
plenum and laid out in subsequent decrees ' call for a
gradual transfer from an economic system based on
centralized allocation of supplies to a system based
largely on wholesale trade. Although the Soviets have
flirted with the idea for decades, a true wholesale
trade market has not existed since the 1920s.2 Imple-
mentation is to take place over the next four to five
years-making it, along with price reform,' one of the
last reforms to be fully in place (see table 1).
this delay is a result of an
ideological controversy over the legitimacy of whole-
sale trade under socialism and concern that a major
reform in the supply system could cause widespread
disruptions in the economy.
The concern of a number of Soviets, however, is that
the slow pace of wholesale trade implementation will
have a negative impact on other reforms. One econo-
mist has already complained pointedly that the cur-
rent supply system has become a deterrent to peres-
troyka. Pressure for a more rapid transfer to
wholesale trade may build over the next few years
when firms that are operating under new manage-
ment conditions, particularly self-financing, become
frustrated in obtaining the necessary materials and
equipment. On the other hand, the lack of price
reform-to begin only in 1990-will make it difficult
for the enterprises to make rational supply decisions.
1 The Soviets have given the term "wholesale trade" various
meanings over the years. Some officials have used it to include all
trade carried out by the State Committee for Material and
Technical Supply (Gossnab), while others include only sales in the
network of stores operated by Gossnab. Wholesale trade is defined
in this article as a system in which enterprises, without need of
authorization, freely purchase items, including producer goods,
from another enterprise, manufacturer's outlet, or territorial supply
organizations.)
The Old System
During the five-year and annual planning cycles,
central authorities have dictated not only what to
produce and who produces it, but who supplies whom.
Thousands of products are centrally allocated through
the State Planning Committee (Gosplan) and the
State Committee for Material and Technical Supply
(Gossnab). Gossnab departments, which are organized
by major products, together with subordinate territo-
rial offices, work out the details of distributing sup-
plies. The territorial offices also manage the Gossnab
supply depots and warehouses located throughout the
country, which are directly responsible for obtaining
material and equipment allocated to enterprises in
their region.
late primarily within its own organization.
At present, the Gossnab system accounts for 70 to 80
percent of total trade turnover, and the rest is orga-
nized by the ministries and local government organi-
zations. A 1965 decree on government reorganization
formally removed the supply function from ministerial
control, but it explicitly allowed some ministries to
retain this function (see table 2).' Other ministries also
succeeded in retaining their supply departments and
informally retained as much authority over supplies as
they could manage. All ministries have been responsi-
ble for determining resource requirements for subor-
dinate enterprises, dividing up ministerial allocations,
monitoring the fulfillment of enterprise plans for
supply and deliveries, and carrying out measures for
economizing on supplies. The ministry has been given
the responsibility for allocating products that circu-
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Enterprises submit their annual requests for supplies, 25X1
which are based on both the previous year's require-
ment and additional materials and equipment needed
for any production changes stipulated in the five-ye--
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Included are those ministries concerned with railways, air trans-
port, river and maritime fleet, communications, agriculture, electric
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Table 1
Soviet Economic Reforms
Wages
Planning
60 percent of all industrial production; 40 percent of Whole economy by end of 1989.
all enterprises; an estimated 60 percent of agricultur-
al production; 50 percent of scientific organizations;
100 percent of transportation.
60 to 70 percent of work force. All industrial sectors by end of 1990.
All enterprises and associations. In 1988, however, State orders to be reduced to 30 to 40
state orders make up 80 percent of industrial produc- percent of total output and allocated by
tion, including 90 percent in the fuel ministries and competition, by 1991.
60 percent in the nine civilian machine-building
ministries.
Less than 4 percent of total industrial production; 15 Wholesale trade reform to cover 75 to 80
to 20 percent of sales through state supply networks. percent of sales through state supply net-
works and two-thirds of total sales by
1992.
All banks. A reorganization is being undertaken, but No date given.
decentralization of bank lending policies will be
limited and gradual.
Wholesale prices None; to begin in 1990. Industry, transportation, and communica-
tions by 1 January 1990; construction and
agriculture, by l January 1991.
Retail prices None; to begin only after full public discussion. Whole economy, presumably including re-
tail, by 1991.
Foreign trade 26 percent of all imports; 14 percent of all exports. No date given.
Quality control 732 more enterprises; for first time includes food No further expansion announced.
processing and construction sectors. Roughly 80 per-
cent of machine-building output and more than 30
percent of all industrial production will be covered.
All central ministries, republic central committees, By end of 1988.
and republic Council of Ministers.
plan. To give Gosplan and Gossnab time to work out
the details of allocation plans, enterprises are obligat-
ed to report their requirements six to eight months
before the beginning of the year. After Gosplan or
Gossnab "balance" the requests with production ca-
pabilities, Gossnab issues allocation certificates to
enterprises that stipulate suppliers and amounts of
products that can be purchased. Enterprises present
these to suppliers to purchase almost all items. Details
are spelled out in contracts.
This system often malfunctioned: unexpected short-
ages, new demands, and changing circumstances re-
sulted in last minute demands on enterprises by
ministries. Constantly increasing output targets and
minimal accountability for expenditures on inputs
worked together to create the chronic shortages typi-
cal of the Soviet economy. Because the formal system
worked poorly, Soviet enterprises resorted to informal
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Table 2
Past Efforts To Move to Wholesale Trade
Recreated Gossnab and ministerial system; trans- Gossnab recreated; little progress on move to
ferred supply function to Gossnab; called for estab- wholesale trade; expansion of small-scale indus-
lishment of direct ties between producer enterprises trial wholesale stores owned by territorial supply
and their suppliers; called for gradual transition to organizations.
wholesale trade in producer goods to support greater
enterprise autonomy.
Increased number of products Gosplan and Gossnab Increased centralization; increased reserves held
allocated in an attempt to reduce ministry duplica- by Gossnab and plants; slowed down turnover
tion of supply function; expanded use of long-term rate; long-term contracts expanded; more whole-
contracts; called for buildup of Gossnab reserve sale stores created.
stocks; expanded wholesale stores.
Limited move to wholesale trade through territorial Criticized for not going far enough; progress slow;
supply organizations. Focused on nonproduction min- few successes.
istries and one production ministry; expanded long-
term contracts; called for reduction in plant reserves.
methods to get the job done that included overstating
requirements, hoarding, employing expediters to lo-
cate supplies, purchasing supplies illegally, bribing,
and storming.'
Reform: Stage One
The first stage of the present reform effort began
when Gorbachev called for reforming wholesale trade
along with expanding direct enterprise-to-enterprise
ties at the Party Congress in February 1986. The next
month the Politburo issued instructions to work out
plans to expand wholesale trade in industrial goods
starting in 1987, and the Council of Ministers issued a
decree that began this process at some 10,000 organi-
zations, including:
? One production ministry-the Ministry of Con-
struction, Road, and Municipal Machine Building.
? Scientific-research institutes.
? Various construction organizations (including those
in Armenia and Estonia).
? Several agroindustrial complexes.
' Storming is the common Soviet practice of working quickly or
overtime at the end of an accounting period to produce most of the
period's output plan. It often occurs because critical supplies are
? A number of ministries in the service sector, includ-
ing the Ministry of Health and the Ministry of
Culture.
The reform made Gossnab's territorial supply organi-
zations the key contact points for enterprises in
obtaining and disposing of supplies, which relieves the
enterprises-at least in theory-of having to deal with
central Gosplan and Gossnab in Moscow and their
own ministries. According to Gossnab Chairman Lev
Voronin, the enterprise could order items from the
territorial branch on the basis of needs evidenced by
orders from customers. Enterprises, however, could
not deal directly with other enterprises in acquiring or
disposing of supplies
The decree met with severe criticism by several Soviet
economists who described it in the press as timid and
an "old product in a new wrapper." Reacting to a
suggestion that real wholesale trade be introduced,
one Gossnab official replied, "No one will let us breed
(such) anarchy in the country." The territorial ap-
proach appears to have been a middle ground between
continued tight central control and true wholesale
trade.
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The Soviet press has claimed some success in this first
stage of implementing wholesale trade reform. In July
1987 the secretary of the Estonian SSR Gossnab
Party Committee reported that, since 25 enterprises
had switched to wholesale trade, stockpiles have been
reduced by almost one-third. In October 1987, Leonid
Abalkin, the director of the Institute of Economics of
the Academy of Sciences, described the success of an
agroindustrial complex in the Kuban:
Everyone expected that people in the Kuban would
start hoarding, laying in vast reserves of oil products,
seeds, feeds, roofing materials, and slate since they
were able to do so. However, when people in the
Kuban saw that supplies remained stable, that they
could buy what they needed, they realized that it was
not necessary to lay in reserves, that it was uneco
nomical. When you have to pay for everything and
pay more for above-norm reserves, then you cut back
your orders yourself.
A number of articles indicate, however, that operating
procedures have not changed appreciably and that
enterprises continue to overstate requirements and
hoard extra materials and equipment. A September
1987 Pravda article noted that:
? The Saransk Excavator Plant ordered enough high-
grade steel for one quarter to fulfill a six-month
program.
? A Lithuanian enterprise ordered 21 tons of structur-
al steel in excess of its needs and six times more
sheet steel than it required.
? An enterprise director of one RSFSR production
association said that his association was operating
under the old system, although it supposedly made
the transition to wholesale trade as early as 1
January 1987.
Moreover, Gosplan and Gossnab appear unwilling to
change their way of operating. For example:
? A new department was created in Gossnab to collect
the requirements for wholesale trade from the terri-
torial organs and present them to Gosplan for
approval. This organization was not able to obtain
enough supplies because Gosplan refused to vali-
date the orders without additional paperwork.
? The Gossnab journal reported in July 1987 that
territorial organs now require enterprises to prove
that they have a genuine need for materials ordered.
As a result, enterprises must spend time gathering
supporting data and filling out paperwork.
? Gossnab has refused to handle orders in quantities
smaller than freight-car or container loads although
it specifically was given responsibility for small
shipments in an earlier decree.
Soviet enterprise managers appear unconvinced that
this reform, which depends on territorial supply or-
gans, will work for them. In a survey of managers
employed by the Ministry of Electrical Equipment
Industry, 72 percent spoke in favor of reforming
wholesale trade, but only 29 percent believed that the
territorial organs could organize it properly, and 49
percent were not prepared to rely on them at all.
Reform: Stage Two
The second phase of the wholesale trade reform was
approved at the party plenum in June 1987; one of the
10 reform decrees published the following month was
"On Restructuring Material and Technical Supply
and the Activity of Gossnab in the New Economic
Management Conditions." Unlike the 1986 decree
that channeled orders through territorial supply or-
gans and only after the completion of elaborate
paperwork, the new decree allows the "free" purchase
and sale of goods under direct contracts between
enterprises or with state wholesale organizations and
with manufacturers' direct outlets. Only "particularly
scarce" goods will continue to be rationed,6 but the list
also includes inputs that are required to fulfill manda-
tory state orders. The process is to start with "groups
of goods of greatest importance for consumer goods
6 Wholesale trade will not include electricity, crude oil, gas, metal
ores, rolled metal, various kinds of specialized equipment, products
supplied for export, defense, and "market stocks" (presumably
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production, agriculture, construction, machinery pro-
duction, needs of cooperatives, and private produ-
cers." According to Soviet officials, the timetable is:
? In 1988, 15 to 20 percent of Gossnab sales will be
transferred to wholesale trade-less than 4 percent
of total industrial output. (Only 5 percent of Goss-
nab sales consisted of genuine wholesale trade in
1987.)
? Gossnab has been instructed to bring the share of
wholesale trade in its total supply to 60 percent by
1990.
? The transition will be complete in 1992, when
wholesale trade will make up 75 to 80 percent of
Gossnab sales and two-thirds of total sales.
The territorial Gossnab organs will become economi-
cally accountable enterprises. They will have responsi-
bility for making minor adjustments to products they
handle-such as cutting metals, timber, or cable to
size; organizing a recycling program for secondary
materials; managing commission stores, providing in-
formation services on alternate suppliers and new
materials, and renting machinery and equipment held
at their warehouses.
The decree also calls for:
? A reorganization of Gossnab on the basis of major
intersectoral complexes and a reduction in the layers
of management.
? Abolition of ministerial supply organizations that
duplicate Gossnab functions.
? Wholesale trade for enterprises under the jurisdic-
tion of the State Agroindustrial Committee.
? Strengthening the system of direct ties for goods not
under wholesale trade.
Prospects
The reluctance of Gossnab and many enterprise man-
agers to let go of the old system of wholesale trade
will make the transition slow and difficult. Gossnab,
an entrenched bureaucracy with a tradition of conser-
vatism, has been placed in charge of this reform's
implementation. The head of Gossnab, Lev Voronin,
was appointed under Gorbachev, but recently came
under fire when Gorbachev, at the June plenum,
The necessity for wholesale trade under conditions of
self-financing has often been argued by V. Belkin,
professor at Moscow State University and longtime
advocate of wholesale trade. In his words,
The basis of the new economic mechanism is
complete cost accountability for enterprises. The
collective is required to earn money for all its
needs. Let us assume that an enterprise has
earned that money. What does it do now?
Where is it supposed to use that money? There
are no machines, raw materials, or construction
materials offered freely for sale. It is necessary
to wait until someone allocates them. Maybe
they will, maybe they won't. Money, even if it
has been earned, is nothing if the only way you
can barter with it is with an authorization.
What kind of self-financing is this?
criticized Gossnab and Gosplan for contributing to
poor economic performance in 1986. There is already
the reform decree.
the major focus of the reform is not free exchange of
goods among plants but territorial reorganization of 25X1
the supply system. Other major goals appear to be a
reduction in paperwork and in the stocks that plants
hold. Although admirable objectives, these are symp-
toms, not causes of past problems with the wholesale
trade system.
Enterprise managers appear interested in the general
concept of wholesale trade but are reluctant to give up
guaranteed sales and supplies. As a result, they are
clamoring to obtain state orders-mandatory orders
by Gosplan for which supplies and sales are guaran-
teed. This type of response seriously inhibits the
growth of competition among enterprises that the
reform is intended to foster.
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Finally, the slow pace of implementation of this
reform will seriously inhibit reforms in other areas.
Without free trade in supplies, enterprise managers
will be greatly limited in their ability to spend the
profits that they are allowed to keep under "self-
financing" (see inset, page 23). On the other hand,
wholesale trade before price reform makes little sense,
and price reforms are not scheduled for full imple-
mentation until 1991. Enterprise managers need ra-
tional prices to guide their supply decisions. Pressure
for a more rapid implementation of wholesale trade
and price reform may build as other reforms run up
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Conference Report: "Trends in
Gorbachev's Policy in the
Third World"
agreement about the importance of the developing
world. under Gorbachev, policy-
makers are now voicing support for ideas previously
Curtis Kamman, Deputy Assistant
Secretary of State for Intelligence
and Research
An all-day conference sponsored by the Office of
Soviet Analysis, Regional Policy Division, was held on
3 December 1987 to offer CIA managers and analysts
an opportunity to explore with the guest speakers
Soviet Third World policy under General Secretary
Gorbachev. The morning session covered political and
economic aspects of Gorbachev's "New Thinking";
the afternoon session covered Soviet strategies in the
Third World and their implications for the United
States. Each guest speaker made a short presentation
on the key issues of whether there is anything "new"
in New Thinking. The speakers discussed how grow-
ing Soviet sophistication in diplomatic and economic
exchanges affects Soviet-Third World relations, how
the Soviets handle regional crises, and whether US-
Soviet relations play a role in Soviet activities in the
Third World.
New Thinking or Not?
The participants addressed the issue of whether there
really is New Thinking on the Soviets' part and a
substantive change in Soviet foreign policy toward the
Third World or merely a change of style, process, and
rhetoric. In addition, the speakers focused on whether
there has been or will be a retrenchment in the Soviet
position in the Third World. The speakers did not
reach a consensus on the question of whether there
has been change in Gorbachev's Third World policy.
Soviet perceptions of and
policy toward the Third World are in flux under
Gorbachev. He said that there is debate among the
Soviet leadership about Third World issues but also
discussed only among Soviet academics.
the sub-
stance of New Thinking is not new to Soviet academ-
ics, who have been discussing this over the past eight
to 10 years, and that what is new is that the basic
tenets are being adopted by the government. The new
pragmatic thinking espoused by Gorbachev started
under Andropov,
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cant change in Gorbachev's Third World policy: the
Soviets are neither reducing nor increasing the size of
their commitments to their Third World clients. As
evidence that there is no retrenchment in Soviet
policy, the Soviets have pushed
for military offensives in Angola and Afghanistan.
evidence of real change would be a
withdrawal from Afghanistan, an announcement that
support for Nicaragua cannot continue, a quest for
other than a military solution in Angola, establish-
ment of diplomatic relations with Israel, or changed
patterns of arms transfer-all of which he thinks are
unlikely.
Deputy Assistant Secretary Kamman stated that he
sees a continuity in interests and methods of pursuit of
Soviet policy, but also noted that Soviet clients are
more troublesome than the Soviets expected and that
a new leadership and new generation in the USSR are
having an effect on Soviet policy. He added that New
Thinking reflects a new attitude, although the old
compulsions toward expansionism still exist and the
Soviets still primarily react to events rather than try
to make them happen. He sees no Soviet retrenchment
anywhere and pointed out that the Soviets continue
assistance to Cuba and to their Third World clients
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that are economic "basket cases." The Soviets are
trying to cut costs but have not backed away from
existing military commitments, although they have
not started any new ones. The Soviets have discovered
a multipolar world and have found themselves overex-
tended; it is possible that overextension will eventually
development without straining relations with socialist-
oriented states. he Soviets proba-
bly never were convinced that revolutionary "van-
guard" parties would succeed in moving to socialism
or Communism and probably are now less convinced
of the inevitability of this process. But under Gorba-
lead to a retrenchment.
Political Aspects.
he political dimension of Soviet policy in terms
of three major new themes of Soviet-Third World
policy:
? Interdependence and the global nature of interna-
tional problems.
? The political and diplomatic dimension, rather than
only the military, of global affairs.
? The existence of alternative paths of development
other than capitalism and socialism
Moscow has been stressing interdependency in dis-
cussing Third World issues, The
concept of "globalism" provides a theme under which
the USSR can work toward a number of foreign
policy goals.Osees renewed support, at least in
Soviet rhetoric, for bilateral and multilateral consul-
tation through forums such as a Middle East peace
conference, an Asian collective security conference,
the Nonaligned Movement, the Organization of Afri-
can Unity, and the United Nations. He pointed out
that Gorbachev at the 27th Party Congress acknowl-
edged the importance of such global issues as the
scientific-technological revolution, media communica-
tion, ecology, Third World social problems, and nucle-
ar weapons.
the Soviets are initiating diplomat-
ic offensives and emphasizing political security, al-
though not at the expense of military security. He
noted that more frequent visits by senior officials,
such as those of Foreign Minister Shevardnadze to
Latin America and South Asia, as well as rumors of a
Gorbachev visit to Latin America, exhibit Soviet
interest in expanding contacts in long-ignored areas.
agree that the Soviets have a new
outlook on paths of development. L__] pointed out
that "globalism" gives the Soviets the opportunity to
explore relations with states at differing stages of
chev, Soviet support in the form of military aid
continues to those on the socialist path.
the Soviets recognize that "backsliding" occurs and
that the Third World is differentiated and more
complex than they had previously characterized it.
the Soviets recognize that
differentiation exists in the Third World. The Soviets
have admitted that socialist-oriented Third World
countries have undergone bankruptcy and famine
while capitalist Third World countries have pros-
pered. there has been an open
stocktaking and a substantive discussion of past mis-
conceptions and failures. She stated that the Soviets
recognize that in the Third World not all countries
are victims left helpless by colonial exploitation, that
capitalists have helped to bring about advances in the
Third World, and that multinational corporations
have fostered economic progress, although they are
not the answer to the problem.
Economic Aspects.
take years to complete.
under Gorbachev departures from the old policy and
thinking have already occurred. There is a new Soviet
interest in multilateral economic relations with the
Third World, together with a shift in trading partners
from the OPEC petrodollar economies to Third World
countries with developed technological industries, par-
ticularly newly industrialized countries in Latin
America and Asia. While not abandoning them,
Moscow is pressing its Third World clients to charge
lower prices, diversify trading partners, and balance
their trade, in an effort to reduce the economic burden
of its assistance. Moscow is also undertaking less
expensive projects, particularly agricultural and light
industry rather than the heavy industry projects that
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The Soviets are openly interested in expanding ties to
the private sector and in coproduction schemes with
the Third World,
be Soviets are now discussing trilater-
al ventures in the Third World (while in Latin
America in late September 1987, Shevardnadze dis-
cussed with Brazil establishing joint ventures in Peru,
Algeria, and Zimbabwe) and are allowing capitalist
and Third World countries to undertake joint ven-
tures in the USSR. Soviet interest in
participating in international economic organizations
such as the World Bank and GATT.
during the early 1980s the Soviets
undertook no new major economic commitments (with
the possible exception of aid for Nicaragua) and did
not notably increase Third World aid. He stated that
"globalism," in fact, might be a way for the Soviets to
decrease their aid to Third World clients, by arguing
that countries of the developed world, especially capi-
talist countries in the West, have a responsibility to
provide economic aid to their former colonies.
the pattern under
Gorbachev has been for the Soviets to tell their
Marxist allies to improve relations with and acquire
economic aid from the West while the Soviet Union
will continue to provide security assistance to main-
tain pro-Soviet regimes in power. sees this
as a refinement of longstanding Soviet policy-the
Soviets have always been reluctant to provide econom-
ic assistance to "basket cases"-which has been get-
ting more emphasis and attention now because of the
environment of reform in the USSR. He claims that
the courtship of Third World moderates under Gorba-
chev is not new and that they were not given the
degree of attention in the 1970s that they get today.
He pointed out that the Persian Gulf is a new military
commitment but not an economic one.
Soviet Reaction to Third World Opportunities
The speakers agreed that Moscow is not as opportu-
nistic under Gorbachev, but they also pointed out the
relative absence of opportunities of the sort the Sovi-
ets took advantage of in the past.
the activism of Soviet policy in the late 25X1
1970s, which included establishing close ties to Nica-
ragua and Vietnam, has changed. He claimed that 25X1
Grenada and Syria are examples of opportunities 25X1
during the pre-Gorbachev 1980s that the Soviets did
not seize. He argued that this change in policy
occurred for several reasons: the heightened military
costs associated with an active Third World policy
and the US, Chinese, and West European reaction to
such a policy; the constraints of the Soviet domestic
economy; and political inertia after the triple succes-
sion in the Soviet Union. Deputy Assistant Secretary
Kamman also saw a reluctance on Moscow's part to
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taken on no new commitments in the Third World
because no attractive opportunities have presented
themselves: there have been no new revolutions nor
any calls for Soviet help to build new "vanguard"
parties. He claimed, however, that, should an opportu-
nity present itself, the Soviets would be willing to take
advantage of it to expand their influence, as in the
case of the Persian Gulf. He cited the Soviet response
to the crisis in South Yemen in 1986 as one example
of the continuity in Gorbachev's Third World policy:
the Soviets kept their distance until the outcome was
clear, then moved in and consolidated ties to the new
leadership. sees this as a typical Soviet
agreed that Gorbachev's reaction to the crisis in
South Yemen was not unusual in the Soviet context.
About Afghanistan, Gorba-
chev has not made up his mind on a pullout because of
some major concerns: hardliners in the leadership
might attack Gorbachev as "soft on imperialism"; the
military would view a withdrawal as an embarrassing
defeat that might lead the officer corps to turn against
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lem might surface in Soviet Central Asia at the
spectacle of a defeat of the Great Russians in Afghan-
istan. Finally,
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the Soviets are not prepared to give up
South Asian power.
Deputy Assistant Secretary Kamman noted the politi-
cal costs to the Soviets of their involvement in Af-
ghanistan, citing as an example the increase in the
UN vote against the USSR on the Afghanistan
resolution. He said that Gorbachev wants to withdraw
Soviet troops but also wants to avoid the perception
that the Red Army failed. Cambodia, Angola, and
Nicaragua are areas of commitment from which he
does not see the Soviets disengaging. He sees the
Soviets as willing, however, to accept a coalition
government, a united front, or a process leading to an
internationally acceptable solution to these conflicts.
Gorbachev inherited
a Third World policy that others achieved by trial and
error and that this policy is part of a strategy to
compete with the United States and weaken US
influence in areas of little interest to the USSR.
Soviet interest is opportunis-
tic: to counter US efforts to contain Soviet expansion-
ism. It is a political rather than an economic or
ideological strategy. He stated that, in the Soviet
view, the United States remains an adversary but that
does not preclude cooperation. He pointed out that
Kuwait and Iran are new commitments undertaken so
that the United States would not come out on top. The
Soviets have never been willing to give in on regional
issues to improve US-Soviet relations. The "Rules of
Conduct," in the Soviet view, mean prevention of
confrontation, not an end to rivalry,
Deputy Assistant Secretary Kamman stated that So- 25X1
viet foreign policy stresses the strategic: Gorbachev's
speech at the 27th Party Congress emphasized East- 25X1
West relations and gave only lipservice to the Third
World. The implications for the United States, ac-
cording to Kamman, are that there could be greater
interaction of US and Soviet interests and policies. He
noted that President Reagan's proposal of national
reconciliation as a means of settling regional conflicts,
in his September 1987 speech to the UN General
Assembly, was adopted by the Soviets because they
see the national reconciliation theme as a way to
improve their "peacemaker" image.
Kamman thought the perception that the USSR is
expansionist and plays a zero-sum game must be
challenged. The Soviets are groping toward accepting
the idea that Third World conflicts have an impact on
US-Soviet relations and US popular opinion. The
Soviets have begun to take into consideration the US
Government's reaction to their actions in the Third
World, the effect of Afghanistan on US-Soviet rela-
tions, and the fact that Congress votes on the INF
treaty.
the Soviets now recognize that Third World instabli-
lity can lead to superpower confrontation and has
global implications, because both the United States
and USSR are regional players. noted that the
Soviets are not as confrontational as before.
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Notes
Plans for the coal industry during the 12th Five-Year Plan (1986-90) reveal that,
after years of debate, priority for development apparently was shifted from the
Donets basin in the Ukraine to the Kuznetsk basin in Siberia. Moscow, moreover,
is considering accelerating the shift in resources in favor of the Kuznetsk basin. Al-
though no time period was specified, Moscow reportedly has made a preliminary
decision to invest an additional 6 billion rubles in the Kuznetsk basin-3 billion ru-
bles were invested here during the period 1981-85-while decreasing investment in
the Donets basin by 2 billion rubles. A recent study by the USSR Academy of Sci-
ences concluding that new development in the Donets basin is no longer
commercially viable apparently prompted this decision.
The stakes in this competition for resources are high. Moscow must weigh the
economic advantages that would accrue from accelerated development of the
Kuznetsk basin against the social costs of a still more rapid decline of the coal in-
dustry in the Ukraine. On the one hand, increased output from the Kuznetsk coal
basin-which is scheduled to become the USSR's largest producer by 2000-is a
key link in Moscow's Long-Term Energy Program. That program calls for coal
and nuclear power to provide nearly all of the incremental growth in energy
production after the mid-1990s. On the other hand, with about 350,000 miners
employed by the coal industry in the Ukraine (most of whom would be less than
enthusiastic about moving to Siberia), Moscow must also consider the hardships
these miners would incur as a result of shifting resources to the Kuznetsk basin.
Some miners have written to the Soviet press and appear noticeably upset about
the prospect of losing their relatively high-paying jobs. One miner, who noted that
the Donets basin is one of the most densely populated regions in the country,
characterized the social aspect of the study by the Academy of Sciences as
"antihuman."
We believe that the Donets coal basin is likely to continue to lose out in the compe-
tition for investment resources. The most easily accessible coal reserves have been
depleted, and the remaining reserves require substantial investment in improved
extraction technology geared to thin and sloping seams at depths of 1,000 to 2,000
meters. Despite the increased use of specialized equipment to cope with these
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deteriorating mining conditions, productivity in the Donets basin-which has been
falling since the mid-1970s-is about one-third the productivity achieved in the
Kuznetsk basin, and the cost of producing Donets coal is about twice that of
Kuznetsk coal. In addition, the lobby for Kuznetsk coal holds a few wild cards:
? Mikhail Shchadov-the USSR coal minister since 1985-has spent most of his
career working in the Siberian coalfields and has close ties to the Kuznetsk
basin.
? Also, the Donets recently lost a major organizational entity that had represented
its views: the Ukraine's coal ministry was recently abolished as part of the
general effort to streamline management and give production-level units greater
autonomy.
The pace at which investment funds for the Donets basin are cut, however, is likely
to be gradual. The closer proximity of the Donets basin to markets in the European
USSR and bottlenecks plaguing westward movement of coal by rail from Siberia
will create continuing substantial demand for Donets coal. Moreover, labor
shortages, inadequate social infrastructure, and slow progress in new mine
development and refurbishing old mines in the Kuznets region will hamper
Moscow's efforts to assimilate increased investment there.
Self-Financing in Soviet Light Industry:
A Harbinger of Things To Come?
Light industry has been under self-financing since January 1987, but, according to
several press reports, progress has been rocky. Although enterprise managers
express enthusiasm for the idea of gaining greater control over their earnings,
many have had problems in earning adequate funds and in using those funds to im-
prove enterprise operations. They blame many of their troubles on interference by
the Ministry of Light Industry.
Self-financing is intended to give enterprises the incentive to improve their
performance in order to earn greater profits to reward their workers and finance
retooling and reconstruction. Many enterprises, however, have found that they
lack real control over their financial situation. One problem lies in controlling
costs. In the Rospromtekhnotkan' industrial association, for example, enterprises
have had difficulty in obtaining medium-length, inexpensive cotton used in the
production of industrial fabrics. Instead, suppliers often delivered the wrong
cotton, or pressured the association into ordering the more expensive fine-fiber
cotton, which raised the association's costs last year by 1 million rubles. Deadbeat
customers have also put enterprises in financial straits. The Novokuybyshev
knitwear factory currently owes the Reutovo production association 12 million
rubles. Nonetheless, the Reutovo association must continue to supply Novokuyby-
shev, with or without payment, or face penalties for nonfulfillment of contracts.
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Even when enterprises earn profits under the new measures, ministry interference
often reduces them to a pittance. At the Novosibirsk artistic haberdashery factory,
for example, the ministry increased payments to the central budget from an
already confiscatory 85 percent to 87 percent of enterprise profits. In a similar
case, the State Planning Commission and the Ministry of Finance pressured
several enterprises in the Rospromtekhnotkan' association to sell 2,000 tons of
yarn to Western countries. This required a complete revamping of yarn packaging
to meet buyers' specifications. In the end, central authorities changed the method
of calculating compensation for export sales, so the enterprises' earnings did not
even cover the cost of the new packaging system.
Enterprises have found it difficult to use the funds they have earned to good effect.
In light industry, the amounts earned are often too small to be of use. The
Novosibirsk sewn-goods association managed to net 10,000 rubles for its produc-
tion development and social-cultural funds. The association has been unable,
however, to find suppliers or construction organizations willing to do anything for
such piddling sums. The Moscow Parizhskaya Kommuna footwear factory has
had the opposite problem. The 2 million rubles in its social-cultural fund was too
large to use for desperately needed housing construction without an order from the
Moscow city executive committee.
When an enterprise does allocate its funds to purchase equipment, it may find the
results disappointing, because the ministry still controls equipment allocations.
One Novosibirsk sewn-goods association ordered new flow lines, hoping to improve
its productivity and product quality. Instead, it received equipment of an outmoded
design, worse than that it was already using. At another sewn-goods association,
management ordered 245,000 rubles worth of new equipment but received only
96,000 rubles worth. To add insult to injury, the equipment turned out to be the
same model already in use. An enterprise may find it risky not to spend its funds,
however. The Ivanteyevka textile factory, for example, decided to hold on to its
funds from the amortization of equipment until machine builders improved the
design of the equipment it wanted. The ministry promptly confiscated the unused
3.2 million rubles.
Self-financing-implemented throughout much of industry on 1 January 1988-
offers enterprises the promise of autonomy, but the promise may be difficult to
translate into reality. Although its provisions bar the ministries from changing
norms or confiscating unused funds, experience in light industry has shown that
ministries may do so with impunity. Enterprises lack any real power to use against
central authorities when they violate the provisions of self-financing. The new
management system is unlikely to provide the incentive for enterprises to improve
their performance unless a better balance of power is established between
enterprises and higher authorities.
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After a year of shrinking Soviet nickel exports to the West, there are several
indications that the USSR could boost nickel exports in 1988:
? Open press reports indicate that a new automated cutting line at the USSR's
Severonikel combine in Monchegorsk is now operating at full capacity. Officials
at Raznoimport-the Soviet foreign trade organization responsible for nonfer-
rous metals trade-have indicated some of the material will be for export to the
West.
? The Soviets appear very interested in the Japanese market, where nickel demand
has reached record levels. Moreover, Japan's nickel supplies are likely to become
even tighter following news that the Chinese Government is imposing a 20-
percent export duty on shipments of nickel to Japan.'
? A team of Soviet technicians is currently working at Cuba's Punta Gorda nickel
complex to resolve production problems that slowed exports to the USSR in
As the world stainless steel industry expands, demand for cut nickel is expected to
rise, particularly among the growing number of small, Western, stainless steel
producers.2 Uncut nickel from the USSR-the major world supplier-has general-
ly been cut at either Rotterdam or Antwerp before it is placed for sale on the Lon-
don Metals Exchange. Most of the material then passes to major consumers (such
as Krupp and Thyssen), who have sufficiently large furnaces to cope with uncut
materials. By adding value to the nickel through using their own cutting mills, the
Soviets hope to garner a larger profit from the material and expand their potential
end market, currently confined to the large stainless steel producers.
Increased imports of Cuban material may give the Soviets the ability to
concentrate efforts on further increasing cut nickel production-without sacrific-
ing supplies to domestic industry-and bring in more hard currency. Western
observers believe the Soviets are finding it easier to justify and cope with the high
costs of bringing new cutting mills on line since the price difference between cut
and uncut nickel is widening, making the cost of the new mills a wise investment.
Although the price difference may eventually narrow as the gap between supply of
and demand for the material shrinks, the Soviets may still benefit from a stronger
hand in trading with the West European market if they are able to place more cut
nickel on the London Metals Exchange.
3 New stainless steel alloys and applications reportedly have made the material more attractive to a va-
riety of buyers who are purchasing record amounts of stainless steel for architectural applications,
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According to open press reports, the resumption of Soviet nickel sales to the
United States is still held up "by Soviet consternation over a proposed amendment
attached to the Customs Service authorization bill." This amendment would
prohibit imports of several Soviet materials, including nickel, because some of the
materials have been found by the US Government to be at least partially produced
with forced labor.
A new law to regulate psychiatric care approved in January 1988 is intended
primarily to protect the rights of ordinary citizens, particularly whistleblowers.
The changes could also scale back the practice of confining dissidents in mental
hospitals to silence them, but there are signs that progress in implementing the leg-
islation may be slow.
Judging from Soviet press accounts of the still unpublished law, a key provision is
to hold psychiatrists criminally liable for hospitalizing people they know to be
healthy-with punishment of up to two years' imprisonment or corrective labor.
Patients or their relatives, with the assistance of lawyers, can present lawsuits-
presumably in local courts-against unfavorable diagnoses. The new law also calls
for enforcement and monitoring of doctors' actions by the USSR Procuracy, local
government bodies, and psychiatric review panels.
Press exposes of abuses suggest that the law is meant primarily to prevent corrupt
local officials and managers from using psychiatric incarceration against individ-
uals who draw attention to illegalities or incompetence on the part of their bosses.
Several articles have attacked officials who have punished ordinary citizens for
such things as protesting unfair firings or complaining about inadequate service
from local health and law enforcement officials.
Authorities probably also hope the new law will help erase the USSR's image as a
pariah in the field of international psychiatry and pave the way for Moscow's
reentry into the World Psychiatric Association. Although the Soviets have not
explicitly criticized the abuse of psychiatry against dissidents, they have attacked
both the broad definition of schizophrenia under which dissidents have been
confined and the Serbskiy Institute, the infamous hospital in which dissidents are
incarcerated.
Some change in the behavior of medical officials already appears to have occurred.
The US Embassy recently reported a Soviet psychiatrist's refusal to commit a man
who was arrested while demonstrating at the CPSU Central Committee offices,
and the Soviet Foreign Ministry is receptive to talks with the United States on in-
ternational standards for psychiatric commitments.
In 1987 the regime released nearly 50 political prisoners from psychiatric hospitals
as part of Gorbachev's effort to improve the USSR's human rights image. Of the
releasees we have identified, five were Hare Krishnas, four were associated with
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the free labor movement SMOT, two were Helsinki human rights monitors, and
two were members of the Group To Establish Trust. On the eve of the Gorbachev-
Reagan summit, former SMOT activist Vladimir Gershuni was reportedly
released from a Moscow psychiatric hospital, as was underground trade unionist
Vladimir Lyubovich.
Despite these releases, there are still pervasive abuses. Vladimir Titov, a former
KGB official released from an asylum in 1987, noted that many people were in
asylums solely for their religious beliefs. He estimated that 90 percent of those in
so-called Special Psychiatric Hospitals and 30 percent in ordinary hospitals were
mentally healthy. We have identified about 80 dissidents still in psychiatric
hospitals, but the actual number is probably much larger. Titov believes that,
under Gorbachev, conditions have grown worse. Many young pacifists, in particu-
lar, have been incarcerated since 1985. Even as the new law was being announced,
authorities recommitted a dissident who had already spent 15 years in an asylum
to a hospital in Chelyabinsk.
In August, Soviet officials announced a decision to shift psychiatric hospitals from
police control to the Health Ministry. But a Soviet official admitted during the
Reagan-Gorbachev summit that the change in subordination had only just begun
and would not be complete until the spring of 1988. In two recent articles,
psychiatrists defended their profession against charges of abuse, and Health
Minister Chazov has sounded a defensive note about early releases of psychiatric
patients.
Even under the new law, safeguarding patients' rights will be divided among
several bodies, none of which has a creditable record of protecting citizens. Since
the local courts are still captives of party bosses in their regions, who often
instigate the psychiatric abuse of dissidents, the law will not prevent the fox from
guarding the henhouse without a major shift toward an independent judiciary.
Thus, the law's success will hinge on efforts to root out corrupt leaders and on
high-level backing for the legal reform promised for later this year.
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