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Book Review: Inside Perestroika: The Future of the Soviet Economy by Abel Aganbegyan

Harper & Row, Keystone Industrial Park, Scranton, PA 18512 • 1989 241 pages * $19.95 cloth

Abel Aganbegyan has been one of Mikhail Gorbachev’s chief economic advisers. In his book, which is written for general audiences, Aganbegyan indicates clearly that he has had ample opportunities to observe the operation of a centrally controlled economy and is vividly aware of its failings. He also reveals not only a firm grasp of, but also a strong admiration for, some of the most basic characteristics of a free market economy. Yet his understanding of and dedication to market principles is so flawed that one puts the book down with a sense of sorrow. If these are the views of one of the Soviet Union’s staunchest free-market advocates, then it seems likely that paternalism will prevent perestroika (economic restructuring) from being more than partial.

For years, tales have leaked out of the Soviet Union about the grotesque absurdities which result from centralized control of the economy—how, for example, a shoe factory made all its shoes the same size to satisfy Gosplan’s quota rather than serve the desires of consumers through the market. Now we are treated to such examples coming from the “horse’s mouth,” as Aganbegyan puts it. All such problems he blames on the Soviet system of diktat, or centralized command, which features monopolies in most realms of production. Competition, Aganbegyan notes, has been prevented in order to avoid the problems of unemployment and bankruptcy. But the monopolies have produced vast quantities of largely useless items, such as the “bulldozer” built by a tractor factory which simply added a blade to a caterpillar tractor and proclaimed it to be a “bulldozer.”

Tens of thousands of these ersatz bulldozers were produced by the Chelyabinsk factory each year, primarily for use in the far north. Aganbegyan states that “no bulldozer lasted even a season, and every year each one required a total overhaul costing several times more than the original purchase.” Nor is this an isolated instance, for Aganbegyan states that what he calls the “dictatorship of the producer over the consumer” causes the story to be repeated “in every branch of the automobile, shipbuilding and machine-tool industries.”

Clearly, Adam Smith’s precept that “consumption is the sole end and purpose of production” has been ignored, with disastrous results.

Aganbegyan has several ideas about what needs to be done. He proclaims the need to control monetary growth in order to prevent inflation—sounding much like Milton Friedman, whom he has met. He also advocates opening up the Soviet economy to international trade, providing the double benefits of greater international division of labor and a strong incentive for domestic firms to improve product quality. And he stresses the importance of allowing individual contractual arrangements to replace the diktat of central supervision.

Of course, as Aganbegyan realizes, the Soviet Union has engaged in such periods of reform in the past—under the New Economic Policy instituted by Lenin in the 1920s as well as more recently under Khrushchev and then Kosygin. Yet all these reform phases failed, and the Soviet system sank back into costly centralization.

Will things be different this time? Aganbegyan ardently believes they will. He puts his faith in the growing democratic elements in the Soviet Unionwhich Gorbachev has introduced. But if he were to cast his eyes to the Soviets’ great southern neighbor, India, he would observe that democracy is no guarantee of an end to bureaucratic control and widespread economic waste.

In fact, Aganbegyan himself is reluctant to relinquish much of the centralized control which guides production through five-year plans, guarantees workers’ employment, and provides certain minimum needs. He does recommend allowing work-crs to buy their own homes, partly in order to soak up some of the “ruble overhang” which has developed because the lack of suitable consumer goods has resulted in an extraordinary accumulation of savings. But land and mineral wealth, he believes, should remain basically under state control, and 20 to 30 percent of the Soviet Union’s annual output would be directed by the state.

What will be the outcome of perestroika? At the turn of the 20th century, Henry Adams visited Russia and in The Education of Henry Adams wondered, “Could inertia of race, on such a scale, be broken up or take new form?” Adams wasn’t overwhelmed with optimism. Nor will such a feeling pervade the reader of Aganbegyan’s book. It does seem reasonable to suggest that the ugly caterpillar of Communism has entered a sort of cocoon. Will it emerge as a beautiful capitalist butterfly? That seems unlikely. One suspects that, instead, it is apt to appear as a much more drab and modest socialist moth.

Professor Shannon teaches in the Economics Department at Clemson University.

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