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06/20/91

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Hoover scholars: Soviet economic reform lies with individual republics

STANFORD -- The future of economic reform in the Soviet Union lies, to a large extent, with the 15 individual republics, a team of scholars from the Hoover Institution said after their second consulting session with senior economic advisers to Boris Yeltsin.

Yeltsin is the first popularly elected president of Russia, the Soviet Union's largest republic.

The republics' increasing control over their own economic resources and reforms are the most important recent development in the Soviet Union, the Hoover team concluded.

The six Hoover Institution scholars who have advised the government of the Russian Republic are Annelise Anderson, Michael Bernstam, Edward Lazear, Charles McLure, Judy Shelton and Thomas Sargent. They have worked with Mikhail Bocharov, chairman of the Supreme Economic Council since January, and addressed a joint session of the Supreme Economic Council and the Parliament of the Russian Republic in May.

"The central government has already conceded power to the republics in many ways," Lazear said. "Evidence of the power shift is that property rights to Russian coal were recently transferred from the U.S.S.R. to the Russian Republic."

Possible name change

Recent meetings to change the name from the Union of Soviet Socialist Republics to Union of Soviet Sovereign Republics is significant, Lazear said, and "recognizes that the republics will have control over their economic structures and that economic and political systems don't have to be socialist or communist.

"That means -- in context of the recent Yeltsin victory -- that the Russian Republic will be moving toward a market economy.

"Yeltsin's mandate will make him a formidable political force."

Shelton agreed.

"Yeltsin and his advisers are clearly the driving force toward radical economic reform in the Soviet Union," she said. "They are pushing Gorbachev to live up to his promise of moving the country toward democracy and free markets.

"Yeltsin's people recognize the difficulty of the task before them -- transforming a communist relic into a vibrant free market success story -- but they are dedicated to the objectives of privatization and entrepreneurship.

Organization, agreement

Anderson said that Yeltsin's immediate tasks are to organize the government and complete an agreement between the republics and the central government.

"That agreement is a critical political event, as it divides the responsibilities between the central government and the republics," she said.

Yeltsin is seeking support in the United States "for economic reform on the republican level in the U.S.S.R.," Anderson said. Yeltsin supports a treaty between the republics and the central government that gives the 15 republics the powers necessary for pursuing reform measures that meet the specific economic needs of the individual states, she said.

"Additionally, his election victory has given him the mandate to carry out reforms in the Russian Republic," Anderson said.

Some assembly required

The Russian economic advisers have a number of ideas for economic reform, Bernstam said, but they're seeking a comprehensive, consistent program or plan. "They asked us -- the team from the Hoover Institution -- to put the parts together," he said.

"They now realize that there should be a comprehensive strategy" with key elements of timing and sequence integrated into the program.

Yeltsin's closest group of economic advisers have respect for the judgment of the Hoover scholars in part, Shelton said, because the institution "has steadfastly championed the cause that the leadership of Russia embraces."

When asked about the reform program recommended by Economist Grigory Yavlinsky and American academics, Bernstam suggested that this proposal may "strangle economic reform" by supporting aid programs that funnel funds to the central government rather than to the republics.

One specific proposal cited by Bernstam recommended continued controls over wages and exports.

"This goes against the wishes of the Russian people," Bernstam said, "because it rolls back some free market achievements that already existed in the Soviet Union."

No 'allowance'

Said Lazear: "As advisers, we are not people to be talking about aid packages. Offers of aid should be made by those with the power to grant aid. As academics, we can make suggestions, but suggestions must be made extremely carefully, so they aren't interpreted as offers, which unduly raises expectations.

"It is patronizing and counterproductive to link aid to the U.S.S.R. with economic reform. The decision to embark on a reform strategy is the Soviets'. They are not our children to be given a weekly allowance only after completing their homework."

The team's first trip to the Russian Republic, in March, involved a series of presentations and position papers.

"Last time,we presented programs," Lazear said, "but this time we were arguing points. This was a working trip, where we helped them write documents. While there, we had the equivalent of office hours and met with deputies of the Supreme Soviet and with members of committees of parliament, and we helped them work out details of various economic reforms."

The team's economic advice focused on privatization, budgeting, taxation, labor markets, banking, price reform and tax administration programs.

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