USSR REVIEW

• Document Type: CREST
• Collection: General CIA Records
• Document Number (FOIA) /ESDN (CREST): CIA-RDP89T00992R000100220001-1
• Release Decision: RIPPUB
• Original Classification: S
• Document Page Count: 38
• Document Creation Date: December 23, 2016
• Document Release Date: October 29, 2013
• Sequence Number: 1
• Publication Date: November 1, 1988
• Content Type: REPORT

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IDnitreelitgoernactee of MRS I LII 1911 Secret
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DO NOT GIVE OUT
OR MAN OA
USSR Review
November 1988
Secret
SOV UR 88-012X
November 1988
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Directorate of Secret
Intelligence 25X1
I
USSR Review
November 1988
The USSR Review is published by the Office of
Soviet Analysis.
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Reverse Blank Secret
SOV UR 88-012X
November 1988
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Contents
Articles
Page
Defense Industry Support to Gorbachev's Civil Agenda
Over the past year, the Soviet leadership has increased its attention
to the consumer and has called on defense industry to support this
initiative, as well as continuing its support to his industrial modern-
ization program. There are indications that the weapons producers
are being held accountable to increase civil production-reportedly in
one case by cutting some military programs?but the actual extent
of any trade-offs between civil and defense production is still
unclear. We believe that Gorbachev has not reached the point where
he will disrupt weapons programs that have recently entered
production or are key to Soviet force modernization plans. We think,
however, that in the near term Gorbachev must and will enlist
additional defense resources?including managers, equipment de-
signers, investment funds, and plant capacity?for his civil pro-
grams.
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Raising Nagorno-Karabakh to an Autonomous Republic: 19
A Viable Solution to the Unrest in the Caucasus?
The Soviet leadership has sent a number of signals suggesting that
Moscow is giving consideration to upgrading Nagorno-Karabakh's
legal status as part of a general policy of granting more rights to
"autonomous" entities. Elevating Nagorno-Karabakh from an au-
tonomous oblast to an autonomous republic offers the Gorbachev
regime a potential solution to the ethnic strife in the Caucasus,
which might be acceptable to the contending nationalities and
within the parameters of Moscow's overall nationalities policy.
USSR: Rethinking the Role of Investment
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General Secretary Gorbachev and others in the leadership are
having second thoughts about their initial investment strategy that
emphasized rapid growth of investment and targeted heavy industry
for top priority. Moscow now seems to have decided to restrict
investment growth for producing sectors overall, while giving in-
creased priority to consumer goods sectors, housing, and the agricul-
tural distribution network. Reasons for the evolution of the leader-
ship's views include emergence of a large budget deficit,
disillusionment with the results of the early investment program,
resource constraints, and increased recognition of waste of invest-
ment resources.
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Moscow Urges the African National Congress To Focus 37
on Political Struggle
The Soviets continue to promote the African National Congress as
the main player in the struggle against the current apartheid regime
in South Africa, but they appear to have shifted their approach on
how to conduct this struggle. They apparently calculate that a
violent overthrow of the regime is unlikely in the near future and
that the ANC must complement its military actions with greater
emphasis on political tactics with a view to securing a negotiated
solution.
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Notes
Update on Cooperatives
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Soviet Interest in the Caribbean
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Unrest Continues
To Grow Despite
Rules Against
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Demonstrations
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Defense Industry Support to
Gorbachev's Civil Agenda
Over the past year, the Soviet leadership has dis-
played increasing awareness that it cannot afford to
ignore consumer needs. A long history of low priority
for consumer goods, the realization that quick gains
will not come from "restructuring," and the need for
major revisions in the social contract have combined
to cause strains within the workforce. Thus, the
leadership has raised the priority of the consumer in
the 1988 and 1989 plans and recently passed three
resolutions to increase supplies and improve the quali-
ty of consumer goods and services.
Moscow is turning to the defense industry?a major
claimant of Soviet industrial resources?to provide
near-term improvements in consumers' living stan-
dards. We saw evidence of such a policy at the 19th
Party Conference and more specific indicators in the
three recent resolutions on consumer welfare. The
proposed Resolution on Restructuring advocated re-
leasing resources for peaceful purposes (and for re-
structuring) and stated that all defense programs must
be geared toward "qualitative measures in accordance
with Soviet defense doctrine" that is, geared toward
better, but fewer, weapons. The proconsumer resolu-
tions went even further by:
? Directing unspecified ministries (defense industry)
to convert production capacity currently being used
to produce "production and technical [weapons]
goods for which demand is falling" to production of
consumer goods.
? Specifically calling on eight out of the nine defense
industry ministries to improve the quality and in-
crease their production of televisions, refrigerators,
and freezers. Moreover, although the leadership's
strategy appears to be undergoing some refocusing,
its commitment to modernizing civil industry seem-
ingly has not weakened.
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Defense Industry's Role
Gorbachev has never called into question the basic
mission of the defense industry to develop and pro-
duce in quantity high-quality weapon systems. Rath-
er, he has built upon defense industry's longstanding
production strengths to expand the sector's agenda.
For example, from early 1985 on, an integral part of
his strategy has been to rely on defense industry to
provide the high-technology producer durables?com-
puters, robots, computer numerically controlled ma-
chine tools?needed for civil modernization, because
defense industry alone within the USSR has sufficient
capabilities in these areas. Over the past 18 months,
however, we have seen defense industry's civil priori-
ties move closer and closer to the consumer?from
building the high-tech machine tools that produce the
equipment used to manufacture consumer goods to
expanding production of the equipment used to pro-
duce consumer goods, and to including stiff require-
ments for surging production of consumer goods.
Now defense industry is being called on to make both
an immediate, direct impact on consumer welfare by
increasing production of consumer electronics and
appliances, as well as a longer term indirect impact on
the supply of other consumer goods?especially tex-
tiles and food?through its participation in moderniz-
ing food-processing and light industry factories. As a
longtime source of consumer and producer durables,
defense industry has the potential to support Gorba-
chev's full agenda?his new emphasis on consumer
welfare as well as his economic modernization cam-
paign (see figure). We estimate that, by the early
1980s, fully one-third of defense industry's final out-
put was civil, rather than military, in nature. Hence,
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the question of support to the civil sector is not one of
basic technical capabilities, but one of resource priori-
ties.
Specific Tasking
Gorbachev's original program called for the defense
industry to apply its capabilities to support the high-
tech challenge. In fact, almost two years ago, a
prominent Soviet economist claimed that defense
industry specialists and new production technologies
would be transferred to the civilian sector. Open-
source reporting indicate that several
defense industry organizations were assigned to par-
ticipate in or lead the research on several target areas
of the modernization program, including rotary pro-
duction technology and robotics.
Since late 1987 we have seen steps to assign the
defense industry responsibility for supporting pro-
grams focused on the consumer, rather than on
production technology per se. In particular, defense
industry has been directed to:
? Develop and implement a program to retool the
food-processing and light industry sectors. On I
March 1988, the Ministry of Machine Building for
Light and Food Industry and Household Appli-
ances, a civil ministry, was disbanded and its 260
plants resubordinated to eight ministries, more than
half of which are in the defense industry. In addi-
tion, the Military-Industrial Commission has been
assigned responsibility for the defense industry's
efforts in this program through 1995.
? Increase production of high-quality consumer
goods, primarily at plants which already produce
such goods. The defense industry has been tasked to
produce more consumer goods and to significantly
improve their technological level and quality.
? Convert facilities from military to civil production.
Several defense industrial plants affected by the
INF Treaty have claimed conversion to civil produc-
tion. Moreover, the Acting Director of the Soviet
Institute of Economics, Viktor Loginov, recently
claimed that a "number" of defense-industrial en-
terprises have been switched entirely to producing
consumer goods, while others are making such
production a priority rather than a sideline.
Secret
Implementation of Civil Programs
The regime has already committed defense industry
to a marked increase in capital goods deliveries, so
new initiatives in the production of consumer goods
probably have set up substantial civil-military ten-
sions that are difficult and possibly time consuming to
resolve. Over the past few months, we have seen signs
of defense industry apathy?and in some cases resis-
tance?toward even the civil modernization agenda of
1987. In a televised meeting of the Council of Minis-
ters on 19 October 1988, Soviet Prime Minister
Ryzhkov responded by rebuking Igor Belousov, the
head of the Military-Industrial Commission (VPK),
for defense industry's failure to boost production of
machinery for food processing. Ryzhkov ordered the
defense industry to staff newly acquired civil plants
quickly with its best people and to integrate produc-
tion of food-processing equipment into its main-
stream?the weapons-production complex. He warned
that anyone who failed to get with the program "is
makin a big mistake and life will put him right."
In what we believe was a response to this pressure,
Lev Ryabev, the head of Ministry of Medium Ma-
chine Building?the organization responsible for nu-
clear weapons production and traditionally one of the
most secretive bureaucracies in the USSR? took the
unusual step of detailing his support for civil pro-
grams. In an interview on 9 November, he described
his plans to produce more equipment for the dairy
industry and private consumers. He acknowledged
that military programs would be affected.
Ryabev's statements indicate that at least one
defense-industrial Minister has a serious commitment
to goals in the civil sector, and others probably will
follow his lead. A prime candidate is the Minister of
the Aviation Industry, who last month on national
television pledged that his Ministry would produce
macaroni production lines and not "scrap metal."
Even if Moscow has decided to switch substantial
defense industry resources from the military to the
consumer, we should not be surprised by the fact that
we have not seen any direct evidence of such a shift.
The lack of evidence may mean that, even though
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USSR: Selected Data on Civil and Defense Machine Building
Composition of Defense-
Industrial Production
Percent in 1982 constant rubles
100
90
80
70
60
50
40
30
20
10
Consumer
durables
Producer
durables
Defense
hardware
Selected Defense Industry Output:
Share of Total Production in 1982
Percent
Consumer durables
Refrigerators
50
Washing machines
33
Tape recorders
90
Television sets
100
Producer durables
Numerically controlled
machine tools
30
Computers
75 to 90
Tractors
15
Defense hardware
Aircraft
100
Missiles
100
Ships
100
Land arms
75 to 90
0 1965
70
75
80 82
Composition of Machine-
Building Production, 1982
Percent
Output of
Civil Machine Building
Output of
Defense Industry
Note: Data represent deliveries to final demand
but exclude capital repair.
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Illustrative Strategies for Increasing Defense Industry's
Support to Civil Programs
Strategy
Resource Requirements
Potential Impact on Civil
Program
Potential Impact on Defense
Increase deliveries of capital
goods to the civil sector by di-
verting equipment intended to
support weapons production.
No additional resources
required.
Substantial. Over 25 percent of
defense industry output is high-
quality capital equipment,
which we now estimate is used
to retool weapon-production
facilities.
Substantial in the long run. In
essence, this strategy would
mortgage future production ca-
pability by postponing upgrades
to defense plants.
Increase resources for civil pro-
duction at civil plants by closing
weapon plants.
Minimal. Close down weapon
final assembly plant or lines.
Redirect raw materials and in-
termediate products. Reassign
labor force.
Substantial. Could release high-
quality resources (steels, elec-
tronics) that are in short supply.
Potentially substantial cut to
near-term weapon production.
Plant could be mothballed for
mobilization contingency.
Increase output of civil goods
using production lines currently
devoted to the manufacture of
military hardware.
New capital equipment to re-
tool production lines, different
supplies, and possibly training
for the work force.
Limited. Plants could only pro-
duce common-use durables
(trucks, automobiles) in the
short run. Eventually they
could expand capacity in other
areas, especially transportation
equipment.
Substantial. Would reduce
near-term as well as long-term
weapon-production capacity.
Design new consumer goods
and capital equipment rather
than weapons.
A refocus of selected elements
of the RDT&E base from de-
fense work to civil applications.
Substantial in the long run. The
best trained and equipped R&D
resources are currently devoted
to defense.
Limited in short run, given long
gestation period for new weap-
ons, but could be substantial
over the long run.
Consolidate weapons produc-
tion at fewer plants to free final
assembly floorspace for civil
production.
Reallocations of and possibly
additions to the labor force and
new and different capital equip-
ment and supplies.
Moderate. Would provide final
assembly floorspace but only
limited workers, materials, and
components.
Minimal in the short run. Possi-
ble substantial reduction to
surge capacity needed for
mobilization.
Increase output of consumer
goods, using defense industry
production lines currently de-
voted to the manufacture of
those goods.
Larger work force for double-
shifting, additional supplies,
materials, and components.
Substantial. Only about 10 per-
cent of defense output is con-
sumer durables. As much as
doubling output is feasible and
would add as much as 5 billion
rubles of consumer durables to
annual output.
Limited. Minor disruptions at
the factory level as some work-
ers were shifted to civil produc-
tion lines. Disruptions would in-
crease if supplies, such as
microelectronics, were diverted.
Increase deliveries of capital
goods to civil factories by ex-
pansion of production at de-
fense industries.
Would require double-shifting
and additional supplies, materi-
als, components, and labor.
Potentially substantial. Defense
industry has the capacity to ex-
pand production of highest
quality equipment, if labor and
materials are made available.
Probably limited as long as la-
bor and components are not di-
verted from defense production.
Strategies could be combined. This table does not address another
broad set of strategies?one based on changing priorities of purely
civil programs within defense industry.
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high-level decisions have been made, they have not yet
been implemented. At a minimum, altering the guns-
versus-butter ratio requires more than a budgetary
adjustment and takes time to enact. New designs
must be developed and tested; production plans must
be changed; financial, material, and human resources
must be reallocated; new production processes must
be set up; and the goods that emerge must be priced
and shipped to customers.
If and when major transfers from military to civil
production begin occurring, we should be able to
detect them.
If Soviet press reporting shows a large,
rapid increase in production of selected consumer
goods such as television sets, this would be a reason-
able indicator of increased defense industry support
because almost all such consumer electronics are
produced by the defense industry. If the conversions
were on a smaller scale, however, any evidence proba-
bly would be difficult to find and interpret. The
attenuation or early phasing out of a few weapons
programs, for example, would be very difficult to
detect and accurately evaluate within a year or two of
when it began
Leadership's Options for More Support
Moscow's efforts so far to involve the defense industry
in its civil modernization and proconsumer programs
do not appear to have limited Soviet capabilities to
develop and produce weapon systems. Until now, the
expansion in defense industry's support to civil pro-
grams has been wide in scope but limited in imple-
mentation. If, however, Soviet leaders now enforce a
Reverse Blank
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change in the sector's priorities as Ryzhkov has
ordered and as Ryabev has claimed, defense industrial
activities and possibly future weapons production will
be affected. 25X1
In the table, we postulate various strategies available
to Soviet leaders and give a sense of the payoffs and
costs to the military corresponding to each. The first
two options, which divert resources or curtail current 25x1
weapons production, would be relatively easy to im-
plement in the near term because they do not require 25X1
new production activities. Options three, four, and
five are harder because they require switching from a 25x1
defense-related activity to a civil activity. Options six
and seven are even more difficult, requiring factories
to do more for civilian customers but also to maintain
defense-related activities. 25X1
The actual extent of any trade-offs between civil and
defense production is still unclear. We believe that 25X1
Gorbachev has not reached the point where he will
disrupt weapons programs that have recently entered
production or are key to Soviet force modernization
plans. We think, however, that in the near term
Gorbachev must and will enlist additional defense
resources?including managers, equipment designers,
investment funds, and plant capacity?for his civil
programs. Open-source reporting from this summer,
for its part, suggests that some long-established weap-
ons production lines may be closed early to release
capacity for civil use. If Ryabev was in earnest and 25X1
other industries follow suit, the defense industry may
have to postpone upgrades to weapons plants, delaying
the introduction of some new or modified systems.
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Raising Nagorno-Karabakh
to an Autonomous Republic:
A Viable Solution to the
Unrest in the Caucasus?
Elevating Nagorno-Karabakh from an autonomous
oblast (AO) to an autonomous republic offers the
Gorbachev regime one potential way to overcome one
of the most severe tests of its domestic policy to date.
While possibly pacifying the Armenians through the
enhancement of the enclave's status within Azerbai-
jan and an increased measure of local?particularly
economic?autonomy, such a solution could also tem-
per serious disaffection among the Azeris, whose
territory and honor would remain intact along with
their ultimate authority over the disputed region.
Gorbachev, who has a strong interest in ending the
turmoil, might avoid or at least reduce the appearance
of backing down to Armenian demands through the
adoption of this solution and at the same time restore
some degree of credibility with the Armenian people
and demonstrate his ability to handle a difficult
domestic crisis.
Entertaining a Change in Status
The Soviet leadership has sent a number of signals
suggesting that Moscow is giving consideration to
upgrading Nagorno-Karabakh's legal status as part of
a general policy of granting more rights to so-called
autonomous entities. At the 19th Party Conference in
June, Gorbachev cited the necessity for "the rights
and the obligations of the union and autonomous
republics and the other national formations to be
defined more precisely" and listed as a basic task the
need "to guarantee conditions for the free develop-
ment of every nation and ethnic group...."
The 18 July 1988 Supreme Soviet Presidium session,
while confirming as expected the continued affiliation
of the Nagorno-Karabakh Autonomous Oblast
(NKAO) with Azerbaijan, nonetheless indicated that
further efforts would be made to increase the region's
autonomy while remaining in the republic. As then
Soviet President Gromyko acknowledged, the effort to
resolve the situation "has hardly begun." Gorbachev
indicated that the final word had yet to be spoken on
the matter when he encouraged continued discussion
of some of the proposals made by speakers at the
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Presidium meeting and recommended forming a com-
mission (subsequently established) within the Soviet of
Nationalities to review those proposals. 25X1
One proposal made at the Presidium session?termed
"interesting" by Gorbachev?particularly reflected
the Soviet leader's call for expanding the rights of the
nationalities and without the change in borders of the
Caucasus republics deemed unacceptable by the lead-
ership. Both Armenian First Secretary Arutyunyan
and Director of the USSR Academy of Sciences
World Economics and International Relations Insti-
tute Primakov recommended raising the status of
Nagorno-Karabakh to an autonomous soviet socialist
republic (ASSR). Then candidate Politburo member
and first deputy chairman of the Supreme Soviet
Presidium Demichev acknowledged at a news confer-
ence the day after the Supreme Soviet session that in 25X1
fact this proposal "is being studied carefully."
Gains and Losses
Nagorno-Karabakh. Given the realities of the Soviet
system, it is possible that elevating Nagorno-Kara-
bakh from an AO to an ASSR would achieve little
more than a higher formal status. Moreover, it is not
clear whether upgrading Nagorno-Karabakh's state
and governmental institutions would have any signifi-
cant impact on the influence of its party organization
vis-a-vis higher party bodies, a key question in assess-
ing the real distribution of power in the Soviet system.
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Despite these uncertainties, raising the status of
Nagorno-Karabakh and allowing it to exercise the full
measure of its rights as an ASSR could offer several
immediate gains for local elites in terms of their
status and ability to exert some influence upon mat-
ters within the borders of their region. Nagorno-
Karabakh would be entitled to replace the fundamen-
tal law under which the enclave operated as an
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Autonomous Republics and Autonomous
Oblasts of the USSR
Union Republics Autonomous Autonomous Oblasts
Republics (ASSRs) (A0s)
RSFSR Bashkir Adygei
Georgia
Azerbaijan
Buryat Gorno-Altai
Dagestan Jewish
Kabardin-Balkar Karachai-Circassian
Kalmyk Khakass
Karelian
Komi
Mari
Mordovinian
North Ossetian
Tatar
Tuva
Udmurt
Chechen-Ingush
Chuvash
Yakut
Adzhar
Abkhaz
South Ossetian
Nakichevan
Tadzhikistan
Nagorno-Karabakh
Gorno-Badakhshan
Uzbekistan Kara-Kalpak
autonomous oblast with its own constitution. The
Azerbaijan Republic Supreme Soviet retains the au-
thority to give final approval to the document; this is,
however, a caveat that would certainly limit the
extent of genuine autonomy given to the region. The
territorial integrity of the enclave would also be
ensured as an ASSR, since Article 84 of the 1977
USSR Constitution (mirrored in Article 81 of the
1978 Azerbaijan Constitution with respect to the
Nakichevan ASSR) guarantees that "the territory of
an autonomous republic may not be altered without
its consent." This would probably assuage any
Armenian concerns about unacceptable territorial
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adjustments to the NKAO becoming part of a future
resolution of the crisis in the Caucasus.'
Nagorno-Karabakh's representation to the republic's
legislative and judicial bodies would not be affected
by upgrading it to an ASSR, since, like the Nakiche-
van ASSR, it is already entitled to one deputy
chairman position on the republic's Supreme Soviet
Presidium and is also represented on the Azerbaijan
Supreme Court by the chairman of its highest court.
Increased representation to the USSR Soviet of Na-
tionalities might not significantly enhance its direct
influence at the national level, but some improvement
in Nagorno-Karabakh's position within the republic's
Soviet of Nationalities delegation could occur. If
Gorbachev's proposals to give the Supreme Soviet
some real power are implemented, this influence could
become important.
Upgrading Nagorno-Karabakh to an autonomous re-
public would seem to offer some of the potentially
most advantageous changes for the region in the
sphere of enhanced government authority. An imme-
diate visible benefit would be an increase in the area's
representation at the republic level with the constitu-
tionally mandated membership of its Council of Min-
isters chairman in the Azerbaijan Council of Minis-
ters?Article 123 of the Azerbaijan Constitution
stipulates this for the Nakichevan ASSR. As an AO,
Nagorno-Karabakh is not granted in the republic
constitution such legally guaranteed representation
for the chairman of its executive committee
Comparing articles of the Azerbaijan Constitution
relevant to the NKAO and the Nakichevan ASSR
reveals other improvements in Nagorno-Karabakh's
status. Article 151, for example, gives the NKAO
' According to Article 108 of the draft law on constitutional
changes published in Pravda on 22 October 1988, the new Congress
of People's Deputies will have the power to ratify the formation of
new ASSRs and AOs and any changes in borders between union
republics. The Supreme Soviet currently has these powers.
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Comparison of Autonomous Republics and
Autonomous Oblasts
There are 20 (see table, page 20) autonomous Soviet
socialist republics (ASSRs) in the USSR. In theory,
they provide an administrative framework for giving
some measure of protection to the indigenous lan-
guage and culture. In practice, they have been used
largely as a means of making formal concessions to
the interests and national pride of minorities without
going so far as to provide them any genuine degree of
autonomy.
According to Soviet constitutional theorists, an
ASSR is a state entity, possessing a range of rights
reflective of the political autonomy endowed by its
status and therefore similar in certain respects to the
union republic in which it is located. Both an ASSR
and union republic, for example, have the authority
to draft and approve a constitution, confer state
citizenship upon residents, and require concurrence
for any alterations of territory. Autonomous repub-
lics, however, are a constituent part of a union
republic and do not have the latter's constitutional
right to secede from the USSR.
There are a number of formal differences between
autonomous republics and autonomous oblasts
(A0s)?of which there are eight in four different
union republics?but the extent to which their powers
differ in reality is unclear as shown in the following
tabulation:
ASSR AO
State entity in theory Administrative entity
Constitution Fundamental law (zakon)
Supreme Soviet, Council of
Ministers, Supreme Court with
powers defined by federal and
republic constitutions
Soviet, executive committee,
and oblast court without con-
stitutionally defined authority
Must be represented on Presidi-
um of republic Supreme Soviet
by Deputy Chairman
With exception of NKAO, not
entitled to representation on
Presidium of republic Supreme
Soviet
Chairman of Council of Minis-
ters entitled to membership in
Republic Council of Ministers
Ispolkom chairman not neces-
sarily in republic Council of
Ministers
Eleven representatives in USSR Five representatives in USSR
Soviet of Nationalities Soviet of Nationalities
Presumably this concession to the NKAO was made to deflect
Armenian discontent over the enclave's incorporation into
Azerbaijan.
Soviet of People's Deputies the power to adopt deci-
sions and set up departments and administrations of
executive committees. As an ASSR, however, the
Nagorno-Karabakh Council of Ministers would have
the same right as its counterpart in Nakichevan to
issue decrees as well as "coordinate and direct the
work of ministries and state committees and of other
organs subordinate to it" (Article 136). In addition,
for matters within its jurisdiction, Article 80 would
provide Nagorno-Karabakh with the power to "coor-
dinate and supervise the activities of enterprises,
institutions, and organizations of union and republic
subordination."
21
NKAO party First Secretary Pogosyan recognized
the extension of local authority over economic matters
in an interview in mid-August 1988 when he noted
that, as an autonomous republic with a Council of
Ministers, all basic industries in the region would fall
under "territorial administrations" and mean essen-
tially "complete autonomy" for local and light indus-
tries. Pogosyan indicated further that as an autono-
mous republic, Nagorno-Karabakh could establish
"economic and other relations" with other republics.
Given Baku's acknowledged discriminatory economic
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policy toward the NKAO, involving deliberate neglect
as well as prejudicial hiring practices, and the signifi-
cance of economic grievances to proponents of the
enclave's reunification with Armenia, securing great-
er local economic authority through autonomous re-
public status would be considered a major accom-
plishment by the Armenians.
While upgrading the NKAO falls short of the Armen-
ians' proclaimed goal of reunification, such a solution
does enhance the region's position toward Baku and
gains a measure of autonomy for it, particularly
concerning economic matters. This solution may satis-
fy Armenian moderates in the near term, but it will
not placate the militants still demanding reunion with
Armenia as the only acceptable alternative. Pogosyan,
perhaps in an effort to convince those recalcitrant
Armenians of the advantages ensuing from a change
in the NKAO's status, said that "an autonomous
republic has much more independence and many
more rights and possibilities than an autonomous
oblast." He also indicated that upgrading the oblast's
status now was a prelude to further improvements
when the nationalities plenum?scheduled for some-
time next year?would "considerably increase" the
rights of autonomous republics and eventually result
in constitutional changes to resolve the Karabakh
problem.
Despite Moscow's widely publicized efforts at improv-
ing conditions for the Armenians in Nagorno-Kara-
bakh and the suggestions that an even better situation
for them lies ahead, Armenian militants continue to
press for reunification of the NKAO with the "mother
republic." The Supreme Soviet decision to maintain
the NKAO's affiliation with Azerbaijan seems to
have further radicalized some of the militants, as calls
for Armenia's secession from the USSR and expres-
sions of dissatisfaction with Gorbachev in particular
and his restructuring effort in general have increased.
Continued manifestations of Armenian militancy will
complicate the regime's efforts to resolve the issue and
can only exacerbate Armenian First Secretary Aru-
tyunyan's problems in balancing Moscow's demands
for stability with those of the local population for
change.
Secret
Azerbaijan. Although more autonomy and responsi-
bility would flow to Nagorno-Karabakh by raising its
status, the region would, nonetheless, remain a con-
stituent part of the Azerbaijan Soviet Socialist Re-
public and continue to be subject ultimately to Baku's
authority. An indication of the extent of such author-
ity is the fact that constitutionally no change in status
of the enclave can be made without the permission of
the Azerbaijan Supreme Soviet. The expansion of
local economic competence in Nagorno-Karabakh?
possibly the most significant benefit in achieving
autonomous republic status?would still be limited by
Baku's ability to suspend or nullify any decisions and
orders of the Nagorno-Karabakh Council of Ministers
that it deemed illegal or ill advised, according to
Article 128 of the Azerbaijan Constitution.
The retention of ultimate authority in Baku is an
important component of the proposed compromise
solution, since it would probably assuage to some
extent Azeri concerns over appearing to yield to
Armenian pressures. More important, such a solution
would preserve the territorial integrity of the republic
and thereby prevent any impugning of Azeri honor
that would be involved in transferring the region to
Armenia. Accepting a change in the NKAO's status
might enhance Baku's relationship with Moscow and
could be used to the advantage of the new leadership
there to gain future concessions from the center
concerning nationality or other pertinent issues. Azeri
speakers at the June party conference indicated at
least some willingness to consider a compromise reso-
lution of the situation in Nagorno-Karabakh. Al-
though Azeris gave little support at the Supreme
Soviet session to any solution other than maintenance
of the status quo for Nagorno-Karabakh, Gorbachev
noted that it was an Azeri who had initially suggested
elevating the NKAO to an ASSR as a way of ending
the crisis, indicating that at least some Azeris favored
the idea.
Moscow. The Moscow leadership has a strong stake in
settling the Nagorno-Karabakh issue on a more per-
manent basis. Continued unrest in the Caucasus poses
a major threat to the authority of the party, and if the
regime is ever to overcome the bitter alienation of the
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Armenian population produced by years of injustice
and the regime's failure to resolve the ethnic dispute
expeditiously, it will have to devise a solution that is
not mere window dressing. The leadership in Moscow
would clearly prefer a solution that conveys modifica-
tions in Nagorno-Karabakh's status within the con-
text of overall Soviet nationality policy, rather than as
concessions to a disgruntled ethnic minority. A three-
stage approach of upgrading Nagorno-Karabakh to
an autonomous republic, then improving the standing
of all autonomous republics and other national entities
and finally removing constitutional inequities among
the nationalities and broadening their political and
economic rights would seem to meet Moscow's crite-
ria for a viable solution. Not only would this approach
make acceptance of the NKAO's improved status
more palatable to the Azeris, but it also would
demonstrate Moscow's efforts on behalf of minority
nationalities in general.
If the upgrading of the NKAO into an ASSR suc-
ceeded in bringing the Caucasus unrest to an end, the
regime would have demonstrated its capabilities in
crisis management and in resolving longstanding
problems. The success of the regime in handling a
Reverse Blank
23
thorny nationalities situation might partially restore
confidence in the central leadership both locally and
nationally. For Gorbachev and other reform advo-
cates, such an accomplishment could be used to
answer critics who cite the unrest in the Caucasus as a
direct result of the democratization effort and indica-
tive of the dangers contained in implementing Gorba-
chev's reform program too quickly. 25X1
Formulation of a compromise solution that changes
the status of the NKAO could, however, prove unpop-
ular among those Russians who?whether they favor
Gorbachev's reform program in general?would view
a change in the NKAO's status as a concession under
pressure to a minority nationality and therefore a
diminution of Russian authority. Avoiding such a
perception is important for the leadership, but an even
greater danger is that the regime will continue to
muddle through without offering a solution that ad- 25X1
dresses longstanding ethnic grievances. 25X1
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USSR: Rethinkinu the Rlde
of Investment
General Secretary Gorbachev and others in the lead-
ership are having second thoughts about their initial
investment strategy that emphasized rapid growth of
investment and targeted heavy industry for top priori-
ty. Moscow now seems to have decided to restrict
investment growth for producing sectors overall, while
giving increased priority to consumer goods sectors,
housing, and the agricultural distribution network.
Reasons for the evolution of the leadership's views
include emergence of a large budget deficit, disillu-
sionment with the results of the early investment
program, resource constraints, and increased reco ni-
tion of waste of investment resources.
The leadership's new views on investment are largely
reflected in speeches, although some official statistics
have been released indicating steps probably have
already been taken. The announcement in late Octo-
ber of details of the 1989 economic plan and budget
confirms the new investment stringency for producing
sectors and the dramatic shift in leadership invest-
ment priorities. Thus, investment for housing and
other social purposes is to increase 7.4 percent while
investment for industrial and other production uses is
to remain at "roughly the 1988 level." Meanwhile, we
have seen evidence that the leadership is running into
bureaucratic obstacles in setting its new investment
priorities.
The New Deemphasis of Investment
Since the late 1960s investment policy has been at the
center of attempts to move the Soviet economy to a
development path that would substitute productivity
increases for rapid growth in inputs. Investment
growth, which had averaged 7 percent per year during
the period 1971-75, was cut to half that rate in 1976-
80 as Moscow sought to focus on retooling and
reconstruction at the expense of new construction
starts. However, the policy of restraining investment
growth failed to achieve the hoped-for gains in pro-
ductivity, and in 1981-85, after an initial low-invest-
ment growth plan was overturned, annual investment
increases were again stepped up. Upon becoming
29
General Secretary in 1985, Gorbachev, with consider-
able effort, pushed through a plan for the 1986-90
period that called for investment growth higher than
in either of the two previous five-year plans and for
especially high growth in the first year, 1986.
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Recent leadership speeches suggest that once again
Moscow has doubts about the merit and feasibility of
a fast investment-growth strategy.' The theme has
been to refocus and reallocate investment resources in
favor of production of consumer goods and services,
not push for higher investment growth to accomplish
leadership goals across the board. This was evident in 25X1
Gorbachev's speech to the 19th Party Conference in
June 1988 when he stated that housing investment
had been increased by reducing capital investment on
industrial construction. The speech of State Planning
Committee Chairman Maslyukov to the Supreme
Soviet session in October clearly reflected recognition
of the need to check investment growth in industry
and other producing sectors while supporting existing
programs and undertaking new initiatives to improve
living standards. 25X1
This most recent pulling back from a high-growth
investment strategy reflects a number of motivations.
Chief among them are financial constraints, disillu-
sionment with the investment tool itself, resource 25X1
constraints, and focusing on resource waste. 25X1
' We do not believe that total investment (investment for producing
sectors as well as for services and housing) is necessarily being
restricted, compared with the overall five-year plan target. The
Soviet 12th Five-Year Plan called for a 23.6-percent increase in
investment in 1986-90 over investment in 1981-85. This implies
planned total investment of 1,042 billion rubles during 1986-90.
The presence of inflation and unplanned investment in the achieved
investment levels complicates any comparison between actual in-
vestment and the plan. Nevertheless, cumulative investment
through 1988 will be about 620 billion rubles, suggesting that the
five-year plan investment goal would be met easily even if there is
no growth in investment in 1989-90.
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Financial Constraints. Tax losses from Gorbachev's
antialcohol campaign, coupled with greatly increased
state spending on investment since 1985, have intensi-
fied other negative fiscal trends and produced large
budget deficits. Gorbachev stated in February that
the economy's "serious financial problem" requires
"enormous and extraordinary efforts." Speaking to a
Central Committee plenum in July, he raised the
possibility of a near-term decline in the level of
investment as a means of cutting the state budget
deficit.'
Disillusionment With the Investment Tool. While
investment in the Gorbachev era has been roughly on
track with plans, the Soviets are doing poorly in
bringing projects to completion (see figure 1). The
commissioning of new factories has fallen short of
plans, and there are many reports that the renovation
of industrial facilities is behind schedule as well. Lack
of results from the investment resources expended has
led to disillusionment, and leaders are simply not
touting the promise of heavy applications of invest-
ment resources as they did in 1985 and 1986. In a
meeting in August with farmers in Latvia, Aleksandr
Yakovlev, Politburo member and former party secre-
tary responsible for propaganda, ideology, and cul-
ture, criticized the misplaced emphasis on investment
that had been prevalent in 1985 during the early days
of perestroyka and implied that fresh approaches are
required:
A simplistic opinion prevailed: The more capi-
tal investment is provided, the better things will
be. This did not prove to be the case. And now
we are all discovering: machines are useless
without man and his labor, and motivated labor
at that.
' Under the new reforms, decentralized state investment financed at
the enterprise level has become much larger while centralized
investment financed by the state budget and other sources has
declined. Gorbachev, however, almost certainly was not referring to
centralized state investment as a target for prospective cuts,
because, according to Soviet data, it already fell substantially in
1957 by 12 percent. He spoke as if a reduction was only under
consideration. Therefore, he probably was referring to total state
investment--centralized and decentralized.
Secret
Figure 1
USSR: Growth in Commissionings of
New Capital Assets
Percent
0
86
87
a Estimated.
b First nine months of 1988 compared
with same period in 1987.
88
Planned
Actual
319562 11-88
Resource Constraints. Soviet resources have not ex-
panded nearly as fast as called for in original plans.
Growth of the economy through 1988 is running
about 2.5 percent per year, substantially below the 4-
percent annual rate targeted by the 12th Five-Year
Plan. In particular, machinery output has been well
below the pace needed to sustain the regime's invest-
ment plans. In 1987, the introduction of gospriemka,
a new quality-control system, constrained machinery
production severely. A relaxation of the defense effort
could release resources for other uses, but so far there
has been no slowdown in defense growth.
Nevertheless, starting in the summer of 1987 and
with increasing intensity, Gorbachev has repeatedly
stated that improving the consumer's lot should be the
top priority of the economy. In his address to the
party conference in June, General Secretary Gorba-
chev implied that investment will be squeezed in the
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next FYP period (1991-95) in order to benefit con-
sumption. So far the actual diversion of resources to
improve the consumer situation has been focused on
housing. However, the 1989 plan stipulates a 46-
percent increase in investment for the food industry, a
60-percent increase for the meat and dairy industry,
and a 30-percent increase in investment for retooling
machinery and equipment in light industry, which is
to include domestically produced machinery as well as
an expected increase in deliveries of imported equip-
ment. According to the plan, 134 million square
meters of housing are to be built, which is 3.5 percent
more than the 1988 plan called for and nearly 11
percent above the five-year plan target for 1989.
Focusing on Resource Waste. The high-growth invest-
ment strategy has led to expansion of construction
starts and waste of financial and material inputs.
Finance Minister Gostev has stated that eliminating
low-return expenditures is the business of "all zones
and spheres of activity in the economy, and that
neither departmental ambitions nor localistic interests
can take precedence here." At a Council of Ministers
meeting in October, Prime Minister Ryzhkov strongly
denounced waste of investment resources in industry.
As an example, he cited the Ministry of the Petroleum
Industry and displayed photographs showing piles of
pipe and unreclaimed scrap metal scattered in the
Siberian tundra.
Targeting Waste: The Case of Farm Investment
Although Gorbachev has for many years been critical
of the wasteful use of investment resources in agricul-
ture, over the last six months he and other Soviet
officials have stepped up their attacks on such waste:
? In June, Gorbachev recited at the party conference
a list of what he implied are nonsensical indicators
of economic development, including the production
of ever increasing numbers of inefficient agricultur-
al machines. Writing in the journal Komtnunist in
June, editor Yegor Gaydar cited the agroindustrial
complex to illustrate wasted investment resources.
' Investment in the agroindustrial complex, which makes up about
one-third of total Soviet investment, includes productive investment
in state and collective farms?plus investment in rural housing,
roads, communal services, agricultural service organizations, indus-
tries producing goods used in farm operations and food processing,
fishing, specialized transportation, and enterprises of trade and
consumer cooperatives. Investment in the complex was 58.9 billion
rubles in 1985, 62.0 billion rubles in 1986, and 63.2 billion rubles in
1987.
31
He points to large and unsuccessful water reclama-
tion projects, the building of cattle "palaces," and
rapid increases in procurement of substandard agri-
cultural equipment.
In his July plenum speech, Gorbachev was highly
critical of the extremely low return on investment in
agriculture. He pointed out that, since 1970, capital
investments channeled into the development of agri-
culture amounted to 680 billion rubles, but gross
agricultural output increased by only 25 percent. He
cited the examples of Pskov and Novgorod Oblasts,
where, over the past 17 years, gross agricultural
output has declined 12 to 25 percent, even though 25X1
the capital availability increased three to four times.
Our analysis supports his pessimism (see figure 2).
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In July, Gorbachev explicitly rejected the view that
future increases in agricultural output can be
achieved through additional investment and new de-
liveries of resources. And in October, blaming the
Soviet agricultural system for the low return on
investment, he emphasized that the key to increasing
agriculture production is leasing and other reform
measures that increase farmworkers' economic incen-
tives. And, indeed, there have been numerous indica-
tions that a downturn in investment in agricultural
production is likely: 25X1
? According to Vladimir Dolgikh, former Central
Committee secretary for energy and heavy industry,
production of grain harvesting combines was 14
percent lower in 1987 than in 1985. With obvious
approval, he noted in a July Pravda article that
some enterprises are abandoning overstated requests
for material resources and are beginning to make
more rational use of what they already have.
? According to Goskomstat's report on industrial per-
formance for January through July, planned pro-
duction of agricultural machinery was to fall 0.3
percent lower than that of the same period in 1987.
This was the only machine category reported whose
plan called for negative growth.
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Figure 2
Growth of Agricultural Production
Compared With Investment, 1970-87
Billion rubles
70
60
50
40
30
20
10
0
-10
-20
. Annual
agro-
industrial
complex
investment a
(1984
rubles)
1970
75
80
Annual
farm
investment b
(1984
rubles)
Change in
Production
(1982
rubles)
85 87
aAnnual figures for investment in the agro-industrial complex
are not available before 1981. Those for 1985-87 are
from the 1987 Narkhoz. Data for 1981-84 are estimated to
accord with the definition in the 1986 Narkhoz.
b New fixed investment in machinery and nonresidential
structures used in agricultural production ( Narkhoz, various
issues).
a CIA estimate of yearly changes in agricultural output.
319563 11-88
? In early August, Moscow radio reported that a giant
new enterprise at Yelabuga in the Tatar ASSR,
originally intended to produce tractors, had been
placed under the USSR Ministry of the Automotive
Industry and is to be used to manufacture small
automobiles instead (see inset).
? On 1 September the Politburo halted construction
of projects designed to irrigate large areas of land
near the Aral Sea. Although the action is being
taken ostensibly to further long-term ecological
goals, it would have the effect of cutting back
investment resources currently at the disposal of the
Secret
Ministry of Land Reclamation and Water Re-
sources, which has recently been the target of high-
level criticism for improperly managing its invest-
ment projects.
? Funds for a seven-year, 35-billion-ruble road devel-
opment program in the non-black-soil zone will be
obtained at the expense of land improvement and
farm production equipment, according to a Soviet
television report in August.
The 1989 draft plan explicitly called for a reduction in
agricultural investment. A 4 October article in lzves-
tiya reported that at a meeting of the Supreme Soviet
commission preparing the 1989 plan for the agroin-
dustrial complex, Deputy Gosplan Chairman Paskar
stated that 32.1 billion rubles are to be allocated for
the "development of agriculture" in 1989, which is a
slightly lower amount than that in the 1988 plan.'
Further, Paskar said capital investment in the agroin-
dustrial complex would be 1.9 billion rubles less in
1989 than the five-year plan target for that year. The
article noted a "tense silence" in the audience of
largely local officials when Paskar delivered his report
and cited a flurry of questions and rejoinders that
followed it. In the end, the draft plan was sent back
for reworking.
Establishing Priorities Under Investment
Stringency: Signs of Confusion
Allocating investment from the center is frequently
cited as one of the key economic policy making tools
available to the leadership under the Soviet system of
central planning. This model of Soviet investment
decisionmaking probably has always been too simpli-
fied, particularly in its implication that almost all
power in this area rested in the Politburo. It is even
more so now. There appears to be increased political
infighting accompanying investment allocations, while
ministries, local officials, planning authorities, and
enterprises all play roles in the ultimate decisions.
? This figure must refer to the agriculture sector of the economy.
The sector comprises investment in machinery and nonresidential
structures used in agricultural production?essentially productive
investment in state and collective farms. Investment in this sector
was 31.5 billion rubles in 1985, 33.5 billion rubles in 1986, and 34.4
billion rubles in 1987.
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The Yelabuga Project: Cars Instead of Tractors
In early August, Moscow radio announced that the
Kama Tractor Plant at Yelabuga in the Tatar
ASSR?under construction for about six years?has
been put under the control of the Ministry of the
Automotive Industry and will be used to make small
cars instead of tractors. Automobile production is to
come on line in stages, with the enterprise's full
capacity of 900,000 cars a year to be reached in 1995.
Ostensibly, this will support implementation of a
recent Council of Ministers' resolution on increasing
consumer goods production, which has called for
annual production of cars to increase from the cur-
rent 1.3 million to production of 2.3 million by 1995.
Construction of the giant tractor complex at Yela-
buga has been a subject of controversy for some time.
In a Novyy mir article in March, reform economist
Shmelev called the plant "totally unnecessary" and
cited it as an example of wasted budget expenditure.
In January, Kommunist editor Yegor Gaydar con-
demned the construction of the tractor-building facil-
ity, citing its estimated construction cost of 3.8 billion
rubles?roughly equal to 6 percent of current total
annual investment in the agroindustrial complex. He
noted that the USSR produces very few inexpensive
automobiles that middle-income citizens can afford
and commented further that, in view of the acute
imbalance in the consumer goods market, what
should be taking place instead is a dramatic expan-
sion of capacities to produce those goods.
It is apparent, nonetheless, that the decision was
made abruptly, possibly during or in the aftermath of
the July plenum. As recently as April, Deputy Minis-
ter Skrebtsov of the Tractor and Agricultural Ma-
chine-Building Ministry described the tractor plant
project to Western businessmen and said it was part
of the five-year plan's focus on improvements in
agriculture. As outlined by Skrebtsov, the complex
was to consist of six separate factories for the
manufacture of tractor machine tools, fuel systems,
diesel engines, turbochargers, a foundry and forge
operation, and a tractor assembly plant.
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Indeed we have seen a number of signs of contention
and confusion in setting investment targets for the
1989 plan:
? Gosplan's call for a cutback in planned investment
in the agroindustrial complex in 1989 met substan-
tial resistance in the Soviet legislature and was
remanded for further review. In his report to the
Supreme Soviet in late October, Chairman of Gos-
plan Maslyukov indicated that, as a result, invest-
ment in the agroindustrial complex would increase
in 1989 after all, primarily in the processing sectors.
He added, however: "In order to supply the complex
with capital investments, despite the extremely lim-
ited investment resources, we took the extraordinary
step of channeling an extra 1.3 billion rubles into
this complex via resources allocated from other
sectors."
33
? In a recent televised meeting of the Council of
Ministers, Prime Minister Ryzhkov rebuked the
head of the Military-Industrial Commission for
defense industry's failure to boost production of
machinery for food processing in the past year. He
warned that anyone who failed to join the program
"is making a big mistake and life will put him
right."
? Gorbachev has repeatedly indicated in his speeches
during 1987-88 that increased production of con-
sumer goods is the top priority of the economy. Yet
in an October article in Pravda, the Minister of
Light Industry complained that the draft 1989 plan
calls for a small reduction in the investment alloca-
tion to his industry. Now, according to Maslyukov
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Figure 3. The Yelabuga plant, 24 July 1988. As part of a shift of
investment resources toward consumer goods production, this huge
plant under construction at Yelabuga in the Tatar ASSR is to be
used to produce compact cars instead of tractors for agriculture.
speaking to the Supreme Soviet in late October,
light industry is slated to receive a 30-percent
increase in equipment.
? Gorbachev has acknowledged that there are not
sufficient resources to modernize all civil machine
building at once and has taken steps to refine and
refocus the modernization strategy. The Soviet lead-
ership recently directed the machine-building sector
to step back from its across-the-board effort and to
focus on 44 priority areas, many of which emphasize
the quality of life. While investment in the machine-
building sector grew 12 percent in 1986, growth in
1987 was 1.1 percent, according to the recently
published statistical handbook for 1987.
? Maslyukov reported in his closing speech to the
Supreme Soviet that the original 1989 draft plan
called for a 10-percent cut in the supply of tractors
to agriculture. Apparently in response to protests
from deputies on the Supreme Soviet planning
Secret
commission on agriculture, this reduction was over-
turned, and the final plan now calls for a slight
increase in the supply of tractors over 1988.
This contention probably reflects Gorbachev's prob-
lem in transferring more resources to consumer sec-
tors (including critical agricultural needs such as
distribution and storage) perhaps because of disagree-
ment in the leadership and bureaucratic inertia. Al-
though we have no direct evidence of a guns-versus-
butter debate in the leadership, it is likely that
Gorbachev's new emphasis on satisfying the consumer
encountered some resistance from those in the Polit-
buro who represent the interests of heavy and defense
industries. If so, defense ministries would be reluctant
to make a serious commitment to supporting consum-
er sectors. The recent leadership shakeup appears to
reduce the influence of this latter group and could
lessen both political and bureaucratic obstacles to
spending for consumer needs.
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Another source of increased contention in investment
decisions is Gorbachev's reforms. One of the key
elements of his political reforms announced last June,
for example, is a devolution of authority to republic
and local legislatures. As these officials have a greater
say in the investment area, the center will have less
influence. This seems clearly illustrated in the final
decision to send more resources to the agricultural
processing sectors in 1989 following a review by a
legislative commission, despite Gosplan's initial at-
tempt to cut back investment in the agroindustrial
complex. Similarly, the economic reforms call for
enterprises to retain more of their profits and use
them for investment. According to Gosplan Deputy
Chairman Leonard Vid, enterprises have increased
their share of financing of state capital investment
from 3.2 percent in 1986 to 38.4 percent in 1988. Yet
leaving more resources in the hands of enterprises to
make their own investment decisions clearly will
weaken central control.'
' Given the huge increases in this share in such a short time frame,
it is not clear that enterprises have also gained comparable shares of
control over equipment and construction.
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35
Gorbachev probably will be successful eventually in
establishing a new investment program that empha-
sizes the consumer, but squeezing investment in other
sectors, including heavy industry, could jeopardize
prospects for meeting vital production targets. In
1975, Moscow made a decision to sharply curtail
investment growth but overlooked the severity of its
investment requirements in energy, other basic raw
materials, and railroads.' As a result, the economy
found itself short of critically needed resources and
industrial growth slipped substantially. Gorbachev
may be risking a similar scenario unless current
planners are more effective in coping with resource
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Moscow Urges the African
National Congress To Focus
on Political Struggle
The Soviets continue to promote the African National
Congress (ANC) as the main player in the struggle
against the current apartheid regime in South Africa,
but they appear to have shifted their tactics on how to
conduct this struggle. They apparently calculate that
a violent overthrow of the regime is unlikely in the
near future and that the ANC must complement its
military actions with greater emphasis on political
tactics with a view to securing a negotiated solution.
Moscow evidently believes that the ANC should
adopt positions that have a broader appeal and should
increase its diplomatic efforts to bring domestic and
international pressure on Pretoria to move toward
negotiation with the ANC. However, Moscow still
believes that the ANC should continue its military
pressure against the government.
Moscow's "Old Thinking"...
Moscow's position since at least the early 1960s had
been that the best way to advance Soviet interests in
South Africa was to support the ANC's campaign of
armed struggle and to advocate the violent overthrow
of the South African Government and its replacement
by an ANC-dominated, pro-Soviet regime.
the Soviets apparently be-
lieved that widespread violence would provoke coun-
teraction and mass repression by the South African
Government, which in turn would contribute to the
polarization and politicization of the masses. They
also believed that violence would disrupt the economy,
lead to disinvestment by Western companies, and
ultimately promote the collapse of the South African
regime. One of Moscow's major concerns was that
gradual reform and peaceful elimination of apartheid
would reduce the likelihood that the ANC?and the
South African Communist Party?would seize power.
... Some "New Thinking"
In general, Soviet "new thinking" on the Third World
under Gorbachev has stressed the need to use political
means to resolve conflicts whenever possible. Accord-
ing to various press and diplomatic reporting, Moscow
has tried to convince its clients of the desirability of
37
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negotiated solutions. It also has emphasized the need
to start and sustain regional negotiations even if the
positions of key actors are far apart. The Soviets
believe that this policy will help them eliminate
regional conflicts as an issue with the United States,
reduce the burden of supporting clients in light of
their greater concern for their domestic economic
problems, and promote a less threatening image inter-
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In line with this approach, the Soviets seem to have
reevaluated their view of how change can come about
in South Africa. They apparently now conclude that a
violent overthrow of the current regime is unlikely and
that the ANC must put greater emphasis on political
tactics?though not abandoning its military actions? 25X1
with a view to securing a negotiated solution. They
now seem less concerned that a peaceful elimination
of apartheid could proscribe Soviet influence in a
postapartheid South Africa. Last year General Secre-
tary Gorbachev publicly supported the idea of elimi-
nating apartheid by political settlement. However, the
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change in South Africa will not occur in the short
term. Although they have publicly stated that a
regional settlement on Angola and Namibia will
improve prospects for the elimination of apartheid in
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The South African Communist Party
The South African Communist Party (SACP)?
founded in 1921, outlawed in the early 1950s, and
headquartered in London?is of all Third World
Communist parties among the most loyal to the
USSR and takes its cues on policy from Moscow.
Although the majority of members are black, the
party is dominated by English-speaking whites and
Asians. The SACP has a considerable degree of
influence in the African National Congress (ANC)
that stems from SACP representation on the ANC's
ruling National Executive Committee as well as the
ANC's dependence on the Soviet Bloc. Ties were
formalized in an alliance in 1969 of the three revolu-
tionary "pillars of the liberation struggle": the ANC,
the SACP, and the SACP-controlled South African
Congress of Trade Unions (SA CTU). Recognizing
that a socialist revolution is not at hand in South
Africa and that the SACP is a weak Communist
party with a limited following inside South Africa,
the Soviets advise the SACP to work within the
ANC, in cooperation with non-Communist elements,
to change the governing system. The ANC is not
directed by the Soviet Union, however, and non-
Communist nationalists remain in the ascendancy.
South Africa, several accounts indicate that Soviet
Foreign Ministry and academic specialists on Africa
estimate that ending apartheid could take 10 years or
more. Joe Slovo, Secretary General of the Moscow-
dominated South African Communist Party (SACP)
and the only white member of the ANC's National
Executive Committee, earlier in 1988 said that it is
impossible to defeat South African security forces in
the immediate future and, therefore, it is necessary to
use a combination of political and military activity to
bring about a "revolutionary transformation" of
South Africa,
The new Soviet stance also appears to reflect a change
in the Soviet view of the utility of disrupting the
South African economy. While the Soviets probably
would benefit from a disruption of South African
Secret
production of gold and strategic minerals, they almost
certainly do not want to support another African
"basket case" that would look to the USSR for long-
term economic assistance. In contacts with US aca-
demics and officials during 1988, Soviet academics
have suggested that peaceful change, which would
preserve South Africa's economic base, rather than
revolutionary upheaval, is in the interest of all sides
concerned. Moscow has also cautioned the ANC that
a postapartheid South Africa should not experiment
with extreme versions of a socialist economy as have
other African countries
The Soviets also support a broadening of ANC con-
tacts with other black South African opposition
groups and white South Africans. Soviet media com-
mented favorably, for example, on a meeting of ANC
members with moderate Afrikaaner businessmen,
white Liberal members of Parliament, and writers
from South Africa in Senegal in July 1987, which
they called a step toward improving the ANC's
international image and increasing international sup-
port for the ANC. According to the US Embassy in
Lesotho, Soviet Foreign Ministry Africa specialist
Boris Asoyan noted that, while the ANC is an
important political force in South Africa and is the
only organization that represents "all of South Afri-
ca," it is not the only organization commanding the
allegiance of South African blacks. The Soviets have
argued, for instance, that the leader of the Zulu
organization Inkatha, Chief Buthelezi?who they be-
lieve is supported by a majority of the country's
6 million Zulus?cannot be ignored politically,
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Soviet policy toward the ANC will be affected by
Moscow's own interactions with and perceptions of
South Africa. Moscow continues to distrust South
Africa's stated intention resulting from US-mediated
negotiations among Angola, Cuba, and South Africa
to implement UN Resolution 435 on Namibian inde-
pendence. If Namibian independence is achieved, the
Soviets may conclude that the South African Govern-
ment can negotiate in good faith and may urge the
ANC to propose negotiating initiatives to step up the
pressure on Pretoria to resolve the internal political
situation in South Africa. If, however, Pretoria stalls
or reneges on the implementation of Resolution 435 or
if South Africa cracks down on internal opposition to
show it is still tough on the issue of white security, the
Soviets may calculate that it is fruitless to negotiate
with Pretoria and that an intensification of ANC
attacks on the South African regime is the only
remaining path to follow.
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Notes
Update on Cooperatives
Soviet press reports indicate that the cooperative movement grew between January
and July 1988 and that it has caught on more readily in areas with a tradition of
private initiative. This growth will probably continue, perhaps more rapidly,
through 1988 because the progressive law on cooperatives became effective in July
1988. Despite these gains, the relative contribution of cooperatives during 1988 to
improving the quality and availability of goods and services will remain small.
According to the USSR State Committee on Statistics, during the first half of
1988 the number of cooperatives more than doubled to over 32,000 and the
number of people employed by them tripled to more than 450,000 or roughly 0.2
percent of the population. In addition, during the same period, sales of goods and
services to the population by cooperatives were three times as great as for all of
1987. These gains probably can be attributed to publication in March of the draft
law on cooperatives. In a Pravda article (March 1988) the owner of a cooperative
restaurant in Moscow asserted that local authorities had become much more
willing to assist him once the draft law was published.
Thus far, cooperatives appear to be developing more rapidly in regions with a
tradition of private initiative. As of 1 July 1988, among the 15 republics, the
highest percentage of the population employed by cooperatives was in Estonia,
roughly 0.8 percent; followed by Armenia and Latvia, about 0.4 percent; and
Georgia, Moldavia, and Lithuania, about 0.3 percent. In contrast, only about 0.2
percent of the population of the Russian Republic was working in cooperatives.
The implementation of the July law on cooperatives could give an even larger boost
to this movement during the second half of 1988. While the law and subsequent
legislation restrict the freedom of many cooperatives in setting prices, the law
bolsters the legal and ideological legitimacy of the cooperatives, loosens eligibility
requirements for joining them, expands the scope of their activity, and increases fi-
nancial incentives for local authorities to support them. In addition, in July the
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' A cooperative is a business organized by at least three individuals who run the operation collectively
with greater independence than state firms and share the profits.' nav4
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Presidium of the Council of Ministers substantially reduced tax rates on the
income of cooperative members. The high rates, in effect since March 1988, were
widely criticized by reform economists and cooperative members as strong
deterrents to the cooperative movement.
Despite the increased pace of implementation, official statistics suggest that for all
of 1988 cooperatives will account for less than 1 percent of the total sales of goods
and services sold to the population. Even this small percentage may overstate the
net contribution of cooperatives to the economy, because many such businesses
have been formed from unprofitable state enterprises.
Soviet Interest in the Caribbean
Recently Moscow has made limited attempts to strengthen its ties to the
governments and non-Communist political parties of the Caribbean while continu-
ing to maintain ties to Communist political groups in the region. Moscow's new ap-
proach in the Caribbean is in line with its more activist policy toward Latin
America, although the island nations have a lower priority in light of their small
size and relative lack of strategic importance. The Soviets' principal objective in
the Caribbean is to convince the governments to view the Soviet Union more
favorably and to follow a foreign policy that is less dependent on the United States.
Also, they hope that strengthened ties to the left-of-center parties in the region will
pay off in better bilateral relations when and if these parties come into power.
In recent months Moscow has made low-key overtures to the governments of the
Caribbean region. The most visible was the tour in April 1988 of a delegation from
the Supreme Soviet to Guyana, Trinidad and Tobago, and Jamaica, which
attracted moderate media attention in the region. The Soviets met with top
government officials to discuss bilateral relations and air Soviet positions on
various international and regional issues, most notably Soviet views on disarma-
ment and the Central American peace plan. In September 1988 Moscow
demonstrated its interest in strengthening bilateral ties to the Caribbean countries
by conducting consultations with Jamaica and the Dominican Republic on the
43rd UN General Assembly agenda. The Soviets undoubtedly used their visit to
Santo Domingo to step up their longstanding efforts to establish diplomatic
relations with the Dominican Republic.
Moscow continues to maintain close ties to
and give financial support to regional Communist parties. However, there are
indications that the Soviets are apparently urging them to deemphasize violence
and use political, rather than military, means in pursuit of power.
the Soviets have supported a revision of the party philosophy of the
Worker's Party of Jamaica that deemphasizes the role of force and coercion.
the East Germans have criticized the
Dominican Communist Party for espousing violent revolution, and it is likely that
this criticism reflected Soviet views, not all
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Caribbean Communist leaders favor such changes in philosophy and tactics, and
some have criticized Moscow for being preoccupied with relations with the West at
the expense of its support for Third World Communist movements.
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The Soviets are seeking to strengthen their relations with Caribbean trade unions
and expand links beyond those to the few traditional Communist parties in the re-
gion by broadening their contacts with left-of-center social democratic parties and
trade unions.
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This year Soviet scholarships, through the Progressive Trade Union 25X1
Center of St. Vincent, were offered for the first time to students from St. Vincent,
and the Soviet Embassy in Kingston offered four new scholarships to the Labor
Party of Dominica, which, when assigned, would increase to nine the number of
Dominican students studying in the USSR. 25X1
Ironically, as Moscow moves to bolster its relations with left-of-center political
organizations in the Caribbean, the foremost leftist-leaning politician of the
region, Michael Manley, head of Jamaica's People's National Party (PNP) and
noted for his warm relations with the Cubans and Soviets during his tenure in pow-
er, has appeared to distance himself from the Soviets. As the Jamaican election ap-
proaches, Manley has taken steps to isolate certain members of the PNP who have
close Soviet links,
Manley has a poor relationship with Vladimir Aleksandro-
vich Romanchenko, the Soviet Ambassador to Jamaica, and Soviet diplomats have
relatively few contacts with mainstream PNP officials. Manley's apparent move-
ment away from the Soviets may not indicate an actual change in his views
regarding Jamaican-Soviet relations, however. He simply may be following an
expedient path in the face of the coming election. In any case, the Soviets are not
giving up in their efforts to retain their traditionally strong ties to the PNP. For
example, a delegation led by senior CPSU officials planned to attend the recent
50th PNP conference in September 1988, but the conference was canceled because
of Hurricane Gilbert. A Manley victory in the Jamaican election would undoubt-
edly please the Soviets and possibly enhance their position in the country
somewhat.
The results of Moscow's efforts have so far been negligible. Since early 1988 there
has been a slight warming in Jamaican-Soviet relations, which have been very cool
since the government of Michael Manley gave way to that of Edward Seaga in
1980. Disputes over the terms of a contract concerning the Soviet purchase of
Jamaican bauxite have been settled, and, according to a Jamaican press report,
Prime Minister Seaga has asserted that glasnost and perestroyka have allowed for
improvements in Jamaican-Soviet relations. On the other hand, the Dominican
Republic has thus far rebuffed Soviet attempts to establish an embassy in Santo
Domingo, despite the stronger economic links between the two countries.
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The Soviets are probably optimistic about the long-term prospects for increasing
their influence in the Caribbean. Caribbean leaders have expressed frustration
with Washington over US trade policies, and Moscow probably calculates that
they are likely to view the Soviet Union more favorably as a potential trading part-
ner in the future, especially if Moscow's efforts to convey a less-threatening image
to the governments and mainstream political parties are successful. If Manley and
other left-of-center politicians come into power, Moscow will probably find more
sympathy for its views on disarmament and regional issues. The Soviets are likely
to continue to support radical political organizations in the region, but it is possible
that such support would be contingent upon their following a predominantly
political, rather than violent revolutionary, path.
Unrest Continues To Grow Despite Rules Against Demonstrations
In the third quarter of 1988 we noted over 200 cases of unrest in the USSR, the
highest quarterly figure since the unrest data base was established in January
1987. This indicates that a two-year trend of increasing incidence of unrest
continues unabated. Although unrest activity appeared to be leveling off in July
and early August 1988, an explosion of large-scale demonstrations sparked by
nationalist demands in the non-Russian republics in late August and September,
coupled with increased activity among unofficial groups in Leningrad and
Moscow, contributed to growth that was at least 13 percent greater than that of
the preceding quarter.
Decrees on demonstrations that were issued in late July at the national level and in
all union republics did not prove immediately effective in curbing the activities of
unofficial groups. Incidents of unrest in Leningrad, for instance, doubled from July
to August, despite the harsh application of the new rules. Authorities enforced the
decrees to varying degrees, depending on the group. The Democratic Union, which
clearly opposes the Soviet system, was constantly harassed, but other groups, such
as Pamyat, were more successful in subverting the rules. In all, 63 percent of the
August incidents in Leningrad were broken up by officials, and many other events
were thwarted by a show of force on the street and by threats of fines and
imprisonment to participants. We have noted only five demonstrations in Lenin-
grad during September 1988, which suggests the authorities may now have the
situation under tighter control.
Since late 1987 large-scale nationalist demonstrations have overshadowed all other
types of unrest activity. During the third quarter of 1988, about 85 percent of the
large demonstrations involving at least 1,000 people were nationalist demonstra-
tions outside the RSFSR. These events account for 33 percent of all incidents of
unrest during the period.
There was a brief lull in nationalist activity in the Caucusus and the Baltic
following the decrees, but multiple demonstrations held throughout the Baltic on
the anniversary of the Molotov-Ribbentrop Pact shattered the calm. In September
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an outbreak of violence between Armenians and Azeris on the outskirts of
Nagorno-Karabakh sparked the third major phase of unrest in the Caucusus. The
decrees only had an incidental effect on curbing nationalist demonstrations.
Members of the Karabakh Committee were fined for organizing illegal demonstra-
tions, but, because the support network for this group is strong, it is unlikely that
the fines caused them any financial hardship. In the Baltic, groups avoided
punishment by staging daily "flying demonstrations" that lasted only a few
minutes before dispersing. Moreover, the Chairman of the Estonian Supreme
Soviet Presidium has gone on record as opposing the decrees, indicating that many
local officials in the Baltic might be unwilling to apply them.
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