NOVEMBER/DECEMBER 1987 - VOLUME 8 - NUMBERS 11 & 12

Interview with Marshall Goldman

Multinational Monitor: How do you view the recent reforms in Soviet economic management? Marshall Goldman: Well, some of them are still rather modest in scope, but they are certainly more far reaching than anything we have seen before. One example is the announcement that some Soviet enterprises can conduct export-import negotiations and arrange for contracts with foreign companies on their own. The announcement that there would be or could be joint ventures with Western and East European companies coming into the Soviet Union and operating on Soviet territory is also a very far reaching step. The problem is that all of these measures are not being implemented fully. They're being frustrated by bureaucrats, by a reluctance of people to get too far out ahead of the parade, fear that some day there will be a re-evaluation of what has happened and people will be criticized for bringing in capitalism. There have been changes before in attitude and there are probably going to be changes again. Nobody wants to get caught looking like they are, perhaps, succumbing to capitalism. The reluctance is in part a consequence of the fact that the Soviets have not had market systems for 70 years. In China you see a much quicker response because they still have that institutional memory in the back of their minds about what it meant and what it could do. Also, to the extent that all these changes come as rapidly as they are coming, they are unsettling organizationally. They have reorganized the Ministry of Foreign Trade, and the bureaucrats don't know who can make what decision when. That also impedes any implementation of these decisions. There is a lot on paper, very little implementation and there are still some things that they should do that are much more far-reaching which they have not done yet. Monitor: In Soviet society where is Gorbachev's strongest support and opposition? Goldman: First of all, the support seems to come from the intellectuals. They like the emphasis on "glasnost," the emphasis on discussion and openness. The intellectuals, whether they be conservative or liberal, but particularly the liberals, are very excited by this opportunity. Some of the conservatives feel it has gone too far, but that is the main source of support. It does not come from other broad-based groups. There are some members of the bureaucracy, labor unions, workers, military and the police who like what they see, but I think on the whole what is striking is how much opposition or at least reticence there seems to be on the part of all these other groups: the bureaucrats because Gorbachev is threatening their livelihood, telling them that they're going to have to seek new jobs or may have to stand for election; the workers because they have to work harder or their wages will be cut; and the conservatives because they see this as the dismantling of Marxism. Bringing in capitalism and allowing private business, all these things are really destroying the system that these people have come to know and profit from. They get very nervous about this and opposition is very broad-based. Monitor: Fundamental economic reform in the Soviet Union must include major changes in the price system and currency. Are the Soviets implementing or intending to implement such changes? Goldman: Well, some Soviets have said that one of their ultimate goals is currency convertibility for the ruble. But that has to be a long way down the road. Right now, there really isn't all that much in the way of Soviet products that is attractive, and until you get goods that people will want and therefore, want to obtain rubles for, convertibility is going to be very difficult. Under the circumstances it is also going to mean that the Soviets are reluctantly going to have to let their prices fall enough to be competitive. Not only will prices have to fall, they also have to do away with export and import controls, so people are able to export and import what they want. You're just going to have chaos in the domestic market. Given the opportunity, based on Soviet behavior, we know they won't buy any domestic goods. We have some problems like that as well here in the United States. People like to buy foreign goods. It's even stronger in the Soviet Union. Without those controls, their industries would be ruined. There would be massive unemployment and nobody would buy anything. For a long time they protected their industries believing that would give them a chance to catch up. But now, I think it is fair to say that the Soviet Union is the world's most protective economy. Suddenly to throw open all those markets would really cause havoc. That means it will be quite a shock to move to convertibility. Monitor: Could you imagine unrest in the Soviet Union brought on by such changes? Goldman: Yes, certainly. There was such unrest in Novocherkossk in 1962 the last time they tried to raise meat prices. They haven't raised meat prices since and that's the moral of the story. Since there has been so much discussion about raising prices now in the Soviet Union, there have been all kinds of rumors that this is what is going to happen. Some people have gotten very nervous. Apparently some goods which got into the wrong store were higher priced than they have been before, and riots occurred in Minsk as well as in parts of the Ukraine. Monitor: To what extent are recent reforms in the foreign trade sector a short-term response to a decrease in Soviet hard-currency earnings due to the drop in the price of oil, the Soviets' largest export item? Goldman: To some extent that is the case. When they found that oil exports wouldn't earn them as much as they wanted, they looked around for alternatives and they found there were virtually none. That led them to think about what they could do to try to increase earnings. Then they began to talk about joint ventures and trying to develop other kinds of industrial output. That clearly is a reaction, but I think also there is a concern and recognition that the industry, even if it is not going to export, is falling behind and that they better do something to get more technology transferred. I think that also helps to account for these changes. However, there is no doubt that the recent decline in the price of oil has made a big difference. Monitor: Can joint ventures with Western companies really work in the Soviet Union? Goldman: Well it is possible they can work, but the way things are going now it is not very promising. There are two different sets of ambitions. The Western firms look at them as a way of penetrating the Russian market and taking profits out of the Soviet Union, and the Soviets look at them as a way of generating exports and taking profits out of the West; making money inside the Soviet Union by exporting goods to the outside world. There are all kinds of controls imposed. The bureaucrats worry that it will be embarrassing later on if things are not done carefully, so almost every problem you can think of is there in terms of everybody trying to protect themselves. Also, don't forget that joint ventures are ideologically fraught with problems, because you are talking about bringing in capitalists to operate on Soviet territory, and that is when you get into real difficulties. Everything falls back on how are you going to pay for it. Capitalists aren't doing it out of charity. They are not going to set up joint ventures unless they can get the money out and they are not going to supply consumer goods which the Soviet consumer may want until the Soviets can pay for them. Imagine you were a businessman. Where would you locate a joint venture, in Taiwan or in the Soviet Union? The only reason you would locate it in the Soviet Union is if you thought that this would give you access to the Soviet market, but the only way the Soviets would allow it to open up is if they think it is going to give them access to exports in the outside world. For that you go to Taiwan not to Moscow. Monitor: Are relatively low wages in the Soviet Union an important consideration for Westerners interested in a Soviet joint venture? Goldman: Again, if you want cheap labor, you are going to go to Korea or to Taiwan, not to the Soviet Union. You must also consider not just how cheap the labor is, but how productive it is, how much talent and discipline it has. Today one of the big ways joint ventures are going in China and also in other parts of Asia is sweat-labor, and the Soviets are just not up to that. That is not the kind of thing they do well. At one time it did seem that you would go to Eastern Europe because things were cheaper, but we have discovered that it is not all that cheap. The main objective from the Western side is an expansion of market access. Monitor: Can the problem of interagency battles, primarily between the Commerce and Defense departments, over administration of export controls be resolved? Goldman: I don't think we will ever resolve interagency battles as long as the American opinion about the Soviet Union is so polarized. It is not just the question of the government being polarized, it is the question of the American population being polarized. There are some who feel that we should have nothing to do with the Soviet Union, and there are some who feel that we should trade with them. That kind of situation is not something that's unique to the Reagan administration or Carter administration. It was true in the Nixon administration. And it is very dangerous. Imagine that one of the "Fortune 500" with a big market in the United States is contemplating opening up a joint venture in the Soviet Union. Can you imagine the nightmare the public relations people would have if a joint venture did open up and then there was, say, the invasion of Pakistan or something like that? Somebody says to them, why are you making sewing machines in the Soviet Union, why are you making automobiles in the Soviet Union. You helped them conduct that invasion of Pakistan. People said that after Afghanistan. Immediately people stop buying your domestic product. Which is more important, a contract of relatively minor significance dealing in the Soviet Union or the fear that your involvement will cost you your basic market of sales in the United States or Western Europe? That is what companies really have to worry about. Monitor: Where do you think authority should lie for the administration of export controls? Goldman: Well, there certainly has to be some input from the Pentagon, as well as the Department of Commerce. You do have to have those views represented, but the trouble is that sometimes the politics gets so involved that you kind of lose sight of the long-run interest. I think one thing that we have to recognize, which the National Academy of Sciences' report points out, is that we sometimes over-regulate technologies so that we miss the major event. In the case of the Toshiba transfer, we were so busy worrying about other things that we didn't keep track of these milling machines. The significance of the Toshiba case goes far beyond them taking advantage of a sale and hurting us a little bit. They really made possible the elimination or offsetting of one of our major military defense superiorities. Monitor: How do you view the Jackson-Vanik and Stevenson amendments? Goldman: They have been very influential in the past. They served an important purpose in the past, but now I think it has outlived its usefulness, particularly now that the Soviets are becoming much more responsive in terms of emigration. There is no doubt that it did lead to the desire on their part to bring about better relations, and I think that is what is happening now. The question now is if they do good things, we should also try to do good things to show them that we appreciate their responsiveness. Certainly, I am in favor of waiving both of them, and particularly the Stevenson amendment restricting bank credits, which is what bothers the Soviets most of all. 0