The Soviet economy, exploited with ruthless efficiency by Russia’s military men for a quarter of a century, is turning on its masters.
Today, the USSR’s defense establishment is feeling the brunt of a domestic economic crisis. Though the military still gets new arms in abundance, it is being called on to make three sacrifices.
The armed forces are being tapped to contribute not only money but managers and manufacturing assets to advance Mikhail S. Gorbachev’s “perestroika” campaign to rescue the economy from disaster.
This contrasts sharply with the situation since 1964, when Leonid Brezhnev gave the Soviet military carte blanche for a massive buildup.
The upshot of the new Kremlin leader’s actions, in the view of a new congressional study, is that Soviet “military priorities no longer have overriding primacy” over efforts to rectify vast economic woes.
The scope and magnitude of the backwardness attributed to the Russian economy are underscored by a sampling of problems documented in the 1,132-page report, “Gorbachev’s Economic Plans,” prepared for Congress’s Joint Economic Committee (JEC):
• Unfamiliarity with modern technology causes Soviet engineers to take more time to copy the design of an IBM computer than it takes IBM to develop it from scratch.
• Inadequate production and distribution of hospital supplies compel medical personnel to reuse old bandages and needles.
• Distrust of modern fastening machines leads workers to use welds in aircraft assembly rather than to use stronger, more reliable rivets.
• Neglect of transport and storage facilities results in loss of twenty to thirty percent of the annual wheat crop before it gets to the mill.
• Bureaucratic bungling has left only twenty-three percent of Soviet trucks and one percent of buses equipped with fuel-saving diesel engines.
• Out-of-date machining processes waste 638 pounds out of every ton of steel used in production of locomotives.
• Poor planning causes the fattening of Soviet livestock to take twice as long and to require twice as much feed as in the US.
A maximum estimate of the size of the Soviet economy, despite Russia’s larger population, is put at but fifty-five percent of that of the United States—a figure even Russian authorities do not dispute.
Soviet economic performance—by most estimates, poor since 1975—has been getting worse. Between 1969 and 1975, growth of Russian GNP averaged four percent, but fell to only two percent between 1975 and 1985.
Now, long-standing strains stemming from bureaucratic blockages, and vast military demands—as much as seventeen percent of GNP—are compounded by dramatic structural change: An unprecedented decline in growth of the supplies of labor, raw materials, and capital.
Major Political Challenge
The combined impact of these problems is viewed as presenting a new and major political challenge to Soviet military men.
For one thing, according to CIA analyses included in the JEC study, Russia’s economic slowdown has caused a leveling off—though at high levels—of new weapons procurement across the board. Second, experts see increasing “conscription of the defense industry” to aid civilian industrial production in areas ranging from industrial robotics to tractors. Finally, top defense industry executives, the “best and the brightest” of the Soviet economic system, are being transferred to critical civilian posts—especially in aviation.
Does all of this mean that Moscow, seventy years after the Revolution, is on the verge of renouncing military power in world affairs
On the contrary, experts say. The principal motivation for Gorbachev’s reforms, in fact, may be the desire to sustain Soviet power over the long term.
A main conclusion of the JEC report is that Russia’s defense leaders are going along with Gorbachev out of fear that worse times lie ahead if the military remains tied to a hideously deformed economy.
The analysts note that current economic growth is inadequate to provide investment resources for the military as well as for civilians.
More threatening for Moscow’s superpower status is the USSR’s relative backwardness in such high technologies as lasers, computers, telecommunications, and robotics—the stuff of tomorrow’s weapons.
All spring from dramatic changes occurring in Western economies that have bypassed Russia. The situation is summarized by Sovietologist Abraham Becker of the Rand Corp:
“In effect, the Soviet Union finds itself racing in an outer lane of a circular track while its adversary has the advantage of an inner lane. The price of [such] technical backwardness is the necessity to run harder. To escape the trap, the USSR must attempt to get closer to the hinge of the swing, to change lanes.”
Thus, say the study’s editors: “The military appears to have bought into Gorbachev’s program to modernize the civilian economy, out of the belief that defense will be a major long-term beneficiary.”
How far Washington can and should go to exploit Moscow’s economic crunch is a matter of intense debate.
Still, no matter how the United States responds, many analysts believe that the Kremlin has little time to show results before the military reasserts itself. The report warns that a showdown over resources may occur as early as 1990.
By that time, it asserts, “The civilian and military sectors could be on a collision course with respect to resource requirements.” The military currently is quiescent. But “the situation could change if decisions are made to undertake major new military initiatives. Unless the industrial base is enlarged and modernized by the early 1990s, difficult choices will have to be made.”
It is a tall order. The immense difficulties that the Soviet Union faces in this effort are pointed up in virtually every analysis of specific sectors of the Soviet economy that is contained in the congressional report.
The Rickety Industrial Base
These forbidding challenges are nowhere more apparent than in Gorbachev’s avowed effort to spruce up and modernize Russia’s rickety industrial base—the factories, plants, and assembly lines that form the bedrock of a modern economy and its military power.
Presently, Soviet industry consists of a collection of antiquated facilities plagued by low productivity, frequent mechanical breakdowns, and shoddy product quality.
Gorbachev’s ambition: Raise the technological level and efficiency of Soviet industry to that of Western Europe and the US by the 1990s.
The stakes are high. “Industrial modernization is the key to Gorbachev’s ultimate success or failure,” contends CIA analyst Douglas Kreshover. “If his modernization program does not result in the development, production, and assimilation of substantial quantities of high-quality, sophisticated equipment, the gap between Soviet and Western technology is likely to widen during the 1990s.”
Largely due to one-shot gains, say the analysts, growth in Russia’s industrial output has turned upward somewhat from the depressed rates of the early 1980s. Even so, future prospects appear grim, even in industries ticketed for special attention.
A prime case in point is the Soviet machine-building industry, which is due to get an eighty percent boost in investment through 1990. Its output is to be raised by forty percent—a goal that must be viewed skeptically on the basis of the obstacles that are only too apparent.
One of these barriers is the sheer scale of the undertaking. The beginning of the 1980s saw an unprecedented falloff in production of machinery, such as turbines, locomotives, gas and oil drilling equipment, diesel and electric motors, metal-cutting machines, and transport and construction equipment.
Moreover, much of the machine-tool manufacturing base, such as it is, has become obsolete and stands in dire need of replacement.
An illuminating example can be seen in a portrait of a typical hydro-mechanical equipment factory’s machine capacity. About twelve percent of the plant capacity is under five years old, two percent is between six and ten years old, twenty percent is eleven to fifteen years old, and more than sixty-six percent is at least sixteen years old. Some is thirty to forty years old.
The problem is widespread. One Soviet official cited in the JEC study estimates that thirty to forty percent of machine-tool equipment in Russia has been in use for at least fifteen years.
The industry is victimized by a perverse Soviet incentive system that causes plant managers to resist shutting down production lines for modernization rather than risk not meeting output targets.
Thus, say analysts, Soviet managers delay replacing equipment until it is worn out, rather than when it goes obsolete. They stockpile replacement equipment to use at a later time. Even when new equipment is installed, they distrust it and keep the older machines as backups.
The costs of capital repairs, not surprisingly, are a drain of astronomical proportion on resources. A CIA estimate finds that outlays for repair of Soviet machines and equipment amounts to fifteen percent of all industrial investment—five times the percentage in the West.
Ten to twelve percent of industrial workers and twenty-seven percent of metal-cutting machine tools are engaged in repairs.
Apart from these woes, analysts are virtually unanimous in their prediction that the plans for the machine-tool industry will be blocked by bottlenecks in supply of iron and steel.
For Gorbachev’s plan to work, the Soviet metallurgy industry will have to produce high-quality precision steel and specialty plates in place of the crude, mass-production heavy steels it favors. But poor production of metal products is almost certain to be the rule.
What stands in the way of more efficient use of metal? In the analysis of experts Boris Rumer and Yuri Vatkin, it is excessive use of crude casting techniques in lieu of precision metal-forming.
They report that extraordinarily high utilization of iron and steel casting characterizes Soviet machine building. In the 1980s, iron and steel casting constituted almost half of the metal used to produce machinery-2.5 times more than in Western industrial nations.
The resulting waste, and hence inefficiency, is enormous. Because of poor tolerances from castings and the need for labor-intensive machining of coarse surfaces, 6,000,000 tons of cast iron and 3,000,000 tons of steel end up on scrap heaps each year.
For example, in the production of heavy diesel engines, about 1,200 pounds out of every ton of steel goes down the drain.
This bleak outlook is repeated across the range of Soviet industrial enterprises. Two particularly noteworthy examples are the construction and heavy-steel sectors.
The Gorbachev initiatives are expected to create an enormous demand for quality construction and renovation. Modern, technologically advanced equipment requires facilities that have a broad assortment of heating and ventilation features not found in current structures.
Even so, the inefficient and trouble-plagued construction industry is not likely to rise to the task—at least not anytime soon. Soviet officials themselves report that an incredible-twenty-five percent of all ongoing, construction projects have been under way for ten to twenty years. The upshot, reports Robert E. Leggett of the CIA: “Construction time is so long that plants are often obsolete before they are brought on line.”
Also hampering construction, in the CIA’s view, is slack production of gypsum, concrete, and other basic materials. Chemical additives—essential for building materials exposed to extreme cold—as well as steel-reinforcing material and crushed stone are in short supply.
Industrial modernization depends on the ability of the steel industry to improve sharply the quality and expand the variety of steel products provided to key sectors of the economy—from drill pipe for oil rigs to high-performance electrical sheet for transformers. But in the considered opinion of intelligence analyst Cheryl A. Harris, because of outmoded facilities and little incentive to seek quality over quantity, “the steel industry is ill-prepared to meet the challenge.”
Stagnant Energy Industry
In another critical economic sector—energy production—the outlook for Gorbachev’s program is deemed to be little better, despite Russia’s vast endowment of natural resources.
The need for expanded production is made urgent, in part, by wasteful energy use—consumption of two to three times more for each unit of economic output than in any other industrial nation.
The situation reaches absurd proportions in the Soviet trucking industry. According to Albina Tretyakova, an analyst with the US Census Bureau, only twenty-three percent of the 9,000,000-vehicle Soviet truck fleet runs on diesel engines, though these motors are thirty percent more efficient than gasoline-fueled engines.
The Soviet oil industry, the world’s largest, was once able to feed such energy appetites with ease. No more. The Soviet Union is grappling with stagnant rates of oil output in virtually every producing area.
The downturn looks permanent to experts. “The Soviet petroleum base . . . should now be viewed as probably a physically constrained energy resource opportunity,” reports industry analyst John J. Schanz, Jr. “After a century of exploitation, it can no longer be relied on to expand very much in the intermediate term, even though it can be pushed modestly upward by heroic efforts in the short term.”
The experts cite mismanagement as a factor in the decline. They point to damaging overproduction in the giant Samotlor oil field as one example of bureaucratically induced problems. Samotlor production is now expected to decline by a quarter by 1990, far more than would have been the case with more professional exploitation.
The slack will probably be taken up by expanded production of natural gas. With forty percent of the world’s proven reserves, analysts believe this sector has “an outstanding future.”
Even so, the challenge of producing gas from Siberian fields is viewed as immense. The Yamburg field, the main gas field for the late 1980s, lies north of the Arctic Circle and presents more severe terrain problems than today’s fields.
In its search for ways to ease the burdens on oil development, the Soviet Union will now seek to develop its eastern coal basins.
Coal production at most major underground mines is now stagnant. From 1980 to 1986, total annual output from underground coal mines fell by 17,000,000 tons. Production in the Donets basin—the USSR’s largest producer of coal—is exhausted. The average mine depth is 605 meters—eight times the depth of the average US mine. Seams are thin.
The eastern coal is a resource of vast potential. But its worth is undermined by problems in technology and cost, low-grade energy content, inferior quality, lack of ready accessibility to miners, expense to transport, and problems in use.
Apart from the challenges posed by the industrial and energy sectors of the economy, Russia’s creaky agricultural system is in great need of repair. Gorbachev is out to do it, seeking significantly expanded output by 1990.
The verdict of the study’s authors: Gorbachev will be lucky to maintain the current agricultural output, much less expand it.
Few enterprises in the world, it appears, operate with as much inefficiency as the farm economy in Mother Russia. Experts note that Russian agriculture lays claim to massive amounts of national resources—one-third of annual capital investment, thirty percent of the labor force, and vast tracts of land.
All told, agricultural subsidies account for fifteen percent of the state budget.
Yet the agricultural output per hectare is only half that in the US, whose farmers use far less land, manpower, and money for the job.
The impact is all too visible. Once a significant exporter of grain and other food products, the Soviet Union in the last few decades has become one of the world’s largest importers of agricultural commodities.
“This reversal was not only an embarrassment for the Soviet government,” asserts an intelligence expert. “It is mute testimony that its economic system was inadequate even to feed its own citizens.”
A thriving black market and long lines at food markets are described as sure signs of enormous, pent-up demand for a higher-quality diet—especially meat. Nearly half the calories in the Soviet food supply are provided by grain products and potatoes, compared to only one-fourth in the US.
The problems continue despite agricultural performance in 1986 that was, by Soviet standards, impressive. The Soviet measure of gross agricultural output grew by 5.1 percent over 1985, vs. an average annual growth of 1.2 percent in the preceding five years. The year 1986 was also a record for the nation’s livestock production.
The reasons for persistent problems in Soviet agriculture have nothing to do with climate, soil fertility, or other growing conditions. They are man-made.
One is negligence. The CIA’s Barbara Severin, for example, points out that Russian meat production suffers from the failure of livestock growers to balance the kinds of feeds consumed by cattle and hogs.
Another torment is the Soviet agricultural bureaucracy. Farm managers are hamstrung by the state’s constant meddling in their management decisions. Politics wins out over economics. Example: Scarce fertilizer often finds its way to the politically muscular Russian region when it would actually do more good if it were sent to the black-earth zone of the Ukraine.
Moreover, deficient performance in the industrial sectors that support the agricultural sector exacerbates the problem. Soviet agriculture suffers from scarcities in just about every item—balanced fertilizer, good seed, liming, specialized implements, and lightweight tractors.
In the 1980s, only fifty-three of the 144 necessary pesticide preparations were ever actually produced.
Perhaps the greatest problem, however, is the lack of Soviet agricultural infrastructure. Roads, storage facilities, and transport vehicles are dilapidated or nonexistent. Rural housing and civil amenities are scandalously decrepit.
It is the Soviet rural roadway system that confronts Russia with a crisis of truly awesome proportions. Agency intelligence analysts Penelope Doolittle and Margaret Hughes spell out the details.
• Only twenty percent of the roads used to move farm workers to jobs, feed to livestock, and machinery to fields are paved.
• Some eleven percent of regional centers and eighteen percent of collective and state farms still have no reliable link to the main road system. By contrast, in the US, nearly all farms are linked to paved roads.
• In the Russian Republic, the most advanced farm area, only one-eighth of rural roads have hard surfaces.
Result: While there is a grain shortage, waste in transporting grain amounts to twenty percent. Waste and spoilage of fruits and vegetables are in excess of sixty percent. There are big shortages of paper, though forest resources are the richest in the world.
Far and away the greatest challenge to Soviet military power in years ahead is Russia’s technological backwardness. A major element of Gorbachev’s economic reform program is to promote the modernization of Soviet industry by speedy technological change.
The Technology Gap
The Soviet leadership’s sense of urgency about that nation’s technological performance is perhaps best illustrated by its efforts to stimulate Soviet development of information technologies. These are microelectronics-based technologies for processing and transmitting information and include computers, semiconductors, and telecommunications equipment.
It is estimated that the US holds leads of from seven to twelve years in such advanced manufacturing categories as computer-operated machine tools, minicomputers, mainframes, supercomputers, software, and flexible manufacturing systems.
“The real revolution in Western manufacturing technology—the marriage of precision machine tools and microelectronics—has not fully reached the Soviet civilian or defense industries,” observes Shelley Deutch of the CIA.
The Soviets have manufactured their own computers in quantity only since the 1960s, and the nation’s computer hardware and especially software remain of exceptionally poor quality. The evidence is in the amount of computer personnel required to operate Soviet systems.
“Counter to the intent and the whole idea of computerized data processing,” notes author F. I. Kushnirsky, “expanded use of computers led to a higher, not lower, demand for data-processing personnel.”
Most contributors to the congressional report see a fundamental conflict between the rigid Soviet economic system and the imperatives—agility and flexibility—of the new information technologies.
“The Americans are innovators and standard-setters in information,” concludes one. “The Soviets are adopters and adapters across the entire spectrum of this technology and its applications.”
Even if the Soviets could unravel the computer’s mysteries, there will be no early counterpart to the “networked America” of today, with various users linked together. The shortcomings of the Soviet telephone network will see to that.
In the view of Hudson Institute’s Hans Heyman, Soviet telecommunications are nothing less than “archaic” in the extreme. “By any standard,” he maintains, “the Soviet telecom sector is backward and inadequate—not only in comparison with its Western counterparts but also in relation to the needs of its own society.”
A few comparisons with the US illustrate the point.
• While the US has 180,000,000 phones connected to a public network, the USSR has only 29,000,000.
• Each year, US callers generate some 45,000,000,000 city-to-city calls; in the USSR, the yearly total is 1,700,000,000.
• US callers generate 311,000,000 international calls annually; in the USSR, only 2,100,000 such calls are made.
Digital electronic switching is a standard in the West and is even being developed in such Third World nations as India, Brazil, and Taiwan. But the Soviet R&D establishment has not been able to master this technology. It has had to make do with a quasi-electronic switching technology not seen in the US since the 1960s.
Disaster in Consumer Sector
Over recent decades, Soviet authorities have achieved goals for investment in the military and other areas largely by squeezing the Russian consumer. The result is now plain to see—widespread shortages, poor quality, and unrealistic prices on goods and services ranging from housing to health care, from clothing to infant food.
Example: Gorbachev admits that in 1985 millions of meters of fabrics, pairs of shoes, and other consumer goods were returned to the producer because of shoddy workmanship. Waste attributable to lost material and inefficient labor by hundreds of thousands of people was enormous.
The crisis in Russia’s consumer sector takes perhaps its most obvious form in the national healthcare system, a nightmare even by Soviet standards.
A paper by demographer Murray Feshbach reads like a case study of the consequences of underinvestment in health care. He argues that the pattern of increased illness for the population as a whole has spread to the military.
He reports that in the Soviet military:
• Bandages are reused after laundering.
• Vaccines are of poor quality and frequently ineffective.
• Old syringes are reused because of shortages.
• Nonsterile materials are frequently substituted for expensive sterile ones.
• Adhesives are applied instead of bandages.
According to Feshbach, half of the conscripts in some military districts experience intestinal problems during their tours of duty. The same proportion suffer from dysentery at least once in two years, and one-third get it twice. Poor sanitation is a leading cause.
The “childhood” diseases—especially diptheria, mumps, and measles—have increased among adults. Between 1966 and 1980, the incidence of mumps in the USSR increased by about fifty percent per capita. The prevalence of mumps in the military is now so great that it is openly referred to as “the soldiers’ disease.”
The incidence of hepatitis is high, and the disease has spread through the armed forces. Meningococcal infections have increased and are frequently aggravated by misdiagnosis. The number of deaths from pulmonary diseases quintupled between 1960 and 1980.
Medical problems among Soviet troops exist everywhere. Conscripts from Uzbekistan, the Baykal and Ural regions, as well as Siberia are cited for their particularly bad conditions.
“These recruits,” says Feshbach, “undoubtedly reflect the general health status and illness pattern of young people throughout the country, if not the entire population.”
The Housing Calamity
Provision of residential housing, which Gorbachev himself calls “an acute problem,” is called one of the oldest and most persistent consumer calamities in the Soviet Union.
Scarcity is one problem. So tight is the supply of housing that only eighty-five percent of urban families have private dwellings. The rest live in multifamily communal apartments.
Even when housing is available, construction is shoddy. Reports from US analysts note that defects in new housing include missing wood floors, missing plaster on walls, crooked window frames and doors, leaking pipes, and lack of plumbing fixtures. New residents have to finish the work at their own expense.
Housing authorities rarely provide more than the barest amenities. In Leningrad, for example, all housing goes without hot water for two weeks each summer to permit maintenance of plumbing systems. Even in state-owned urban housing, only about thirty percent of dwellings have running water, sewer services, and central heating. The situation is far worse in the countryside.
Given these circumstances, Gorbachev might count himself lucky if he merely prevents the Soviet economic system from suffering a breakdown in years ahead—much less revitalizes it. The demands will be large, not least on the Soviet defense establishment.