A Stop-Go Economy Goes

By channeling vast funds into industry and armaments and by forcing austerity on the consumer, Russia through much of the postwar period maintained a very high rate of economic growth. Then, in 1965, the regime was embarrassed to have to admit --after many official denials -- that the growth rate had been falling since 1959 because of the sheer weight of bureaucratic controls and constraints. Getting the rate back up again has been one of the chief tasks of the government of Aleksei Kosygin and Party Chairman Leonid Brezhnev -- and the latest Russian economic figures show that they have succeeded.

Industrial output in the Soviet Union during 1967's first six months went up 10.6% over the same period last year; this was the highest six-month advance since 1959. The gain in light industry was an even more impressive 12%, including extraordinary advances of 19% in plastics, 24% in refrigerators and 16% in electronic instruments.

Most Subsidized. Western economists suggest several reasons for the upswing, but the major one seems to be more rational planning. Alexander Erlich of Columbia's Russian Institute attributes the figures to a "stop-go" cyclical pattern in the Soviet economy. Under Nikita Khrushchev, the government created massive bottlenecks by funneling vast resources into a few industries, such as chemicals, and neglecting others. The output quotas for many factories were unrealistically high, and suppliers were unable to meet the new demand for material. As a result, the whole economic mechanism slowed down. Now, says Erlich, the Kosygin-Brezhnev team has set more realistic goals and reduced the traffic jam in the flow of supplies.

Industrial production also got an indirect but important boost from Russian agriculture. Last year's bumper crops provided larger supplies of raw materials for the producers of textiles, shoes, vodka, beer and other goods. Since Russia has had to import hardly any food this year, more money has been available to buy new machinery abroad. Last year the government embarked on a plan that will nearly double the size of investment in agriculture. In fact, Russia now has the world's most heavily subsidized farmers.

Inflated Figures? The sweeping economic reform under which "profit" rather than total output is the measure of a plant's production has also begun to make a contribution to Russia's economic growth. To encourage managers to worry more about production costs and the quality of the goods they produce, the government has been gradually introducing over the past three years an elaborate system of bonuses for both managers and workers. Already about 3,600 of the country's 44,000 factories, accounting for almost 30% of production, have been put on the new plan. The profits of the first 700 plants operating under it rose by 24% last year, compared with an increase for all factories of only 8% . Kosygin has announced that all Soviet factories will be on the new plan by the end of 1968.

U.S. Government analysts point out that the Soviet growth figures may be slightly inflated in order to create a festive atmosphere for the 50th anniversary of the Bolshevik Revolution. Furthermore, the Russians often include in their output figures the value of the semi-finished goods imported and only finished in Soviet factories. The Washington economists also point out that to boost the statistics this year the Kremlin is concentrating on completing plants already started -- and getting them into production -- rather than on new factories to redound to the economy's benefit later.

Persistent Deformities. Despite its gains, the Soviet economy is still plagued by some persistent deformities, chief among them an artificial price structure that is almost impervious to shifts in consumer taste. But the man who suggested many of Kosygin's economic reforms, Kharkhov University Economics Professor Evsei Liberman (TIME cover, Feb. 12, 1965), has proposed some therapy for Russian prices. In a recent article, he called for the creation of a "three-tier" structure under which the state would fix prices for raw materials and fuel, set upper and lower limits for certain other standardized products (such as component parts and sheet metal), but allow market forces to set consumer prices.

The Russians still invest large amounts in heavy industry, devote an estimated 20% of their gross output to a huge military establishment (v. 10% for the U.S., which has, however, a gross output twice as large). But at the same time, the long-neglected Russian consumer is coming in for a larger slice of the new and bigger economic pie. A Russian who has the money no longer has to wait for weeks to buy a TV set or a simple household convenience such as a refrigerator. In anticipation of 50th-anniversary celebrations planned for this fall, shops in the major cities are filled with colorful merchandise of fair to high quality. The regime is even doing something for those millions of Russians who have never known the luxury of dry cleaning: the government has grandly announced that the number of dry-cleaning plants across the country will be increased fivefold.

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