Communism Two Crossroads of Reform

By John Kohan

Along Beijing's Xiushui Street, merchants in makeshift metal stands plaintively urge shoppers to buy jade-green grapes, bright red Coca-Cola sportswear and Begonia Flower-brand silk lingerie. A balding trader, waving a fan, hawks Christian Dior-label shirts. They cost 100 yuan ($27) abroad, he confides, but his price is only 25 yuan ($6). A real bargain. The yellow license in his stall identifies him as a ge ti hu (private entrepreneur), who sells his wares on the free market.

At Moscow's Arbat pedestrian mall, evening strollers cluster around a young guitarist. The music has stopped, and the passersby follow a heated argument between a dowdy middle-aged woman and a policeman. Clearly on the defensive, the officer insists that he is not forbidding the street musician to play but only questioning why he is cadging coins. "Times have changed," the angry music fan counters. "The police should not be sticking their noses into matters that don't concern them." The Moscow cop walks away grumbling, "Right now, anything goes."

Welcome to the "Second Revolution," a phrase used by both Chinese Leader Deng Xiaoping and Soviet General Secretary Mikhail Gorbachev to describe the upheaval in economics and ideas now under way in the two Communist powers. The Chinese speak of gai ge (reform) or kai fang (opening up). The Soviets refer to perestroika (restructuring) and glasnost (openness). What the new slogans herald is the most far-ranging shift in course since Dictator Joseph Stalin drove the Soviet Union onto the path of forced collectivization and heavy industrialization in the 1930s and Beijing's Great Helmsman, Mao Zedong, launched the Cultural Revolution in 1966. Indeed, questions about the limits of the new reforms will be on the minds of the Kremlin's leaders as they mark the 70th anniversary of the Bolshevik Revolution this week, just as the issue was discussed by those gathered in Beijing's Great Hall of the People last week to plot their country's course. The debate is not only about the future but also about the past. Every Sunday at Moscow's newly reopened Novodevichy Cemetery, hundreds of curious Soviets wander among the gravestones, searching for a missing piece of history. The quest usually takes them to the jagged, black-and-white monument to Nikita Khrushchev or the haunting marble bust of Stalin's second wife, Nadezhda Alliluyeva (the dictator is buried beside the Kremlin Wall). Since Gorbachev urged historians to fill in the "blank spaces" of the past, the pain of the Stalinist years is no longer a taboo topic.

In Beijing's Tiananmen Square, long queues of Chinese pilgrims enter the imposing mausoleum of Chairman Mao for a fleeting glimpse of the flag-draped body. The scars of the Maoist era are still too fresh for the Chinese to emulate completely the Soviet Union's new view of history. But Deng's new society has found its own way of demythologizing the past. Visitors leaving the monument mob souvenir stands to buy cartons of cigarettes or candy boxes embossed with a golden silhouette of the mausoleum.

When schism split the East bloc in 1960, Moscow and Beijing became clinched in an acrimonious contest for ideological supremacy. The Kremlin no doubt felt relief at the end of the Maoist era. Nonetheless, the mixture of central planning and market economics that developed in China starting in 1978 initially prompted criticism that Beijing was heading down the capitalist road. Since Gorbachev launched his own brand of Communist reconstruction early last year, mutual suspicion has given way to cautious interest and growing - cooperation. Last year China exported $1.2 billion worth of goods to the Soviet Union, compared with only $143 million in 1982, while imports jumped from $243 million to $1.4 billion. A Beijing Kremlin-watcher observed: "Gorbachev is saying the same things that we once said about the need for a more creative interpretation of Marxism."

A stroll through the streets of Chengdu, capital of Sichuan province, the power base of Acting Party Chief Zhao Ziyang, offers a glimpse of just how potent the economic force of self-interest can be. The energetic proprietress of the "Freindship" restaurant points to fresh fish writhing in a bucket, trying to persuade passersby that her culinary skills outshine her grasp of English spelling. A street stall displaying posters of the rock group Wham! advertises a dazzling red-and-blue "American garment." Private traders without permanent stands spread out blankets with photos of movie stars, horoscope cards and plastic hair brushes.

Now Moscow also has its entrepreneurial legions: 12,000 officially registered "individual laborers" and more than 650 "cooperatives." While a policeman looks on benignly, commuters outside Kiev railway station examine the cloth shopping bags, plastic sandals and odds and ends of knitwear on display in a battered truck. Street artists on the Arbat compete for customers. Gorky Park is alive with the sound of plastic bird whistles, costing a relatively hefty 1.50 rubles ($2.40).

Whatever the differences in the Soviet and Chinese approaches to reform, both Moscow and Beijing are determined to pin a Marxist label on their economic experiments. Lenin's decision to revive the private sector during the New Economic Policy of the 1920s figures prominently in the new Soviet economics. Beijing ideologists invoke the theory that China is at a "primary level of socialism" to keep Marxist dogma intact. True reform is meant to provide more bread and steel for the masses, not merely bird whistles.

In what has become a long-distance race along parallel tracks, the Chinese enjoy a lengthy lead. Reformer Deng's brand of "socialism with Chinese characteristics" has scored the most dramatic successes in the countryside. The roads of Sichuan province, the rice bowl of China, teem with bicycles and mini-tractors hauling everything from geese and green beans to bricks and black vinyl sofas. In Guanghan county, one of the first two regions in the country to abolish the Mao-inspired communes and lease land back to farmers % under the family contract system, the per capita income of agricultural workers is 646 yuan ($174), almost four times as high as it was before the reforms.

Few of China's 800 million peasants aspire to the 10,000 yuan ($2,703) annual income of Sichuan Farmer Huang Xinzhi, 40, who built a mini-business empire from a flower-and-tree nursery business. In tribute, local officials awarded him a certificate with the message: "It is glorious and civilized to be wealthy through hard work." Still, since 1981 at least half of all rural families have built new homes. Bao Hongyuan, 38, lives with his parents, his wife and ten-year-old son in a new two-story, six-room house in the model Hong Qiao farming community in the western suburbs of Shanghai. Says he: "We not only have a new house, but electrical appliances, a television set, a washing machine and a refrigerator."

Moscow has been disinclined so far to follow Beijing's lead in returning the land to the peasants. Gorbachev has proposed a modified version of the Chinese plan that would lease marginal land from state and collective farm holdings to enterprising homesteaders and organize farm workers into family brigades. In his speech to the June plenum of the Central Committee, he praised such contract teams, citing a family in the Brest region of Belorussia that managed to increase milk yields per cow from 2,917 kilograms to 5,580 kilograms in only two years. But so far the Kremlin cannot point to well-stocked supermarket shelves as a positive result of perestroika policies.

Soviet economists contend that China's remarkable breakthrough in food production must be measured against the primitive level of farming that prevailed before the reforms. They question whether such high yields can be sustained solely through intensive hand-cultivation of crops. Mechanizing the Chinese countryside would bring about needed changes in farming, but at a high price: widespread rural unemployment. To soak up excess labor and concentrate land in the hands of the most efficient peasants, China has launched a rural industrialization drive that has resulted in smokestacks, water towers and silos sprouting up in the provinces as fast as rice seedlings.

The Chinese face the same difficulties that the Soviets have encountered in revitalizing inefficient urban industries. Under the terms of a restructuring plan unveiled in October 1984, government and party officials must relinquish any direct role in running enterprises, making factory management responsible for profits and losses. A study of large and medium-size urban enterprises published in the Guangming Daily revealed that only 15% of the managers believed they had been successful in carrying out the reforms. An additional 65% claimed that some change had taken place but more innovations were needed, and 20% admitted that their operations lacked economic vitality.

The Chinese now stress the importance of cheng bao, the contract system. New workers entering a factory sign employment contracts subject to review after four or five years, shattering Mao's "iron rice bowl" principle that jobs could be held for life and passed on to family members. Factory directors are free to allocate earnings as they wish, once they have met their contractual obligations to the state. At the Beiwai Marble Processing Factory in Sichuan, Director Peng Zhongyou has only praise for the new system. "There used to be too much interference from the bureaucrats," he contends. "Now the factory has more money, and what workers used to do in two months they now finish in one at double the salary."

Moscow's version of reform began in the factories rather than on farms. Under the new law for state enterprises, which goes into effect next year, Soviet factories must operate on what Gorbachev calls a "pay your own way" basis, rather than rely on funding and administrative fiats from on high. With a more developed industrial base and a better-educated working class, the Soviet Union might be poised for a faster economic takeoff than China. But, like the Chinese experiments, industrial reform Soviet-style has run up against bureaucrats who pay only lip service to perestroika. Says Deputy Finance Minister Vyacheslav Senchagov: "Many factory directors have been awaiting the reforms, but others are used to having decisions made for them. They feel as if they have been thrown into the water and told, 'Comrades, learn how to swim!' "

Five Soviet ministries adopted the new system of self-financing last January. So far, their economic performance has differed little from that of state agencies not taking part in the experiment. The results have posed a critical question: Can a piecemeal approach to perestroika bring results if there is no corresponding overhaul of the pricing or credit system? "The new economic measures are all interrelated," asserts Vladimir Smirnov of the Economic Research Institute of Gosplan, the state planning committee. "It is like an automobile engine. Thousands of parts can be in place, but if one is missing, the car will not start." The same problem has bedeviled the Chinese. Notes a Western diplomat in Beijing: "Factories are running out of room for improvement. They are faced with an irrational economic environment and stymied by an irrational price system."

Unlike China, the Soviet Union still stands at the threshold of the new Alice in Wonderland world of market socialism. Gorbachev pressed the cause of price reform in a speech last month in Murmansk, contending that state- subsidized food prices were so artificially low that "one can see children using a loaf of bread as a football." In a bid to prune such wasteful subsidies and bring prices into line with production costs, the Chinese have developed a complicated three-tier system. Some prices are fixed by the state, others fluctuate within a range of plus or minus 20%, and a third group floats up or down according to supply and demand. The patchwork system sidesteps the political pitfalls of directly exposing Chinese consumers to the mercy of the marketplace, but has resulted in a dip in the production of controlled items like grain. The Chinese economy has contracted the old capitalist ailment of inflation, which rose to about 10% in cities during the first half of the year.

Both Soviet and Chinese economists are aware that price reform must accompany changes in the financing system. Starting next January, as part of a major restructuring of the state savings-bank system, citizens of the Soviet Union's Russian Republic will be able to hold checkbooks. The Soviet Union has set about converting Gosbank, the state financial institution, into a Communist equivalent of the U.S. Federal Reserve System. In addition, specialty banks have been created to service the needs of industry and construction, housing and agriculture.

Most of this is old news to the Chinese. In 1979 they broke the credit monopoly of the People's Bank and set up specialized funding institutions. In an effort to speed the flow of working capital, the Hong Kong "branch" of the once defunct Bank of Communications officially "resumed domestic service." Says Acting Deputy General Manager Wang Weixin: "In the past if a factory wanted to expand production, it opened an account at a construction bank. To purchase equipment from abroad, it needed an account in a foreign- exchange bank. The working capital came from a commercial bank. Now all these needs can be taken care of in one bank."

One Chinese strategy for raising investment funds that so far has no Soviet counterpart was the formal reopening of a stock market in September 1986. The experiment has clear limits. No more than 10% of the shares in state-owned enterprises can be sold on the open market. The red digital "big board" at the Jingan branch of the Shanghai Trust & Investment Co., at 101 Xikang Road, offers only six stocks and four bonds. On a normal business day recently, trading appeared to be more active across the street at a watermelon stand. Says Manager Huang Guixian: "No one under the age of 40 has any knowledge of buying and selling stocks and bonds."

High-technology imports and hard-currency investments are as alluring to foreign-trade officials in Moscow as in Beijing. But the Chinese have opened their doors far wider to the outside world, seeking to woo foreign investment into four "Special Economic Zones" and 14 coastal cities, offering tax incentives and reasonable land and labor rates. The new trade policy has added an exotic splash of color to urban streets. In Guangzhou (Canton), capital of the booming southeastern province of Guangdong, enormous billboards promote products beyond the reach of the bicyclists who pedal past: Canon personal computers, Volkswagen Santana cars and American Express cards. By the end of 1986 the Chinese had approved more than 8,300 joint ventures and permitted foreign companies to set up some 150 wholly owned subsidiaries, manufacturing such consumer wonders for the Western market as the talking Teddy Ruxpin bear.

The Soviets launched a more modest joint-venture program last January. Ten partners are expected to be lined up by year's end, including Pan American World Airways, which just signed an agreement on air routes and hotels with Aeroflot, the official Soviet airline. The Soviets can learn much from Beijing's successes and failures. Chinese projects that appeared promising on paper sometimes proved disillusioning in reality, as foreign businessmen discovered they were expected to pay exorbitant hidden costs to local administrators for office space or to get by with a steady supply of electricity only four days a week. Foreign entrepreneurs also found that even the paper agreements were subject to loose interpretation by inexperienced Chinese partners. Says Martin Posth, a West German who is deputy managing director of Volkswagen's joint venture in Shanghai: "You need the right partner in the right area, and you need to examine the existing infrastructure. But the human factor is the real yardstick for the success of a joint venture. Machinery can be bought and you can find funding, but you cannot buy qualified management."

If the Soviets had a taste of the outside world during the era of detente, it was meager fare compared with the highly seasoned feast the Chinese have come to enjoy. Sidewalk bookstalls in provincial Sichuan now offer readers the autobiography of Archcapitalist Lee Iacocca, selected writings of Sigmund Freud, Harold Robbins' 79 Park Avenue and lavishly illustrated handbooks on how to apply eye makeup. Former students of English gather at twilight by the banks of Chengdu's Jinjiang river to practice their fractured grammar. The flashing sign above the dance floor at Guangzhou's luxury Baiyun Hotel actually reads WELCOME TO JOIN THE PARTY. No one interprets "party" as meaning the Communist variety.

When students took to the streets late last year to press for greater democratization, the warning signal was not lost on China's leadership. Hu Yaobang, a onetime disciple of Deng's, was forced to step down as party leader in January, admitting to "political errors" for failing to contain the protests, and the party pursued a campaign against "bourgeois liberalism." Chinese officials worry about the growing number of cases of corruption, fraud, theft and prostitution that have come to light since the reforms began. The outside world cannot be blamed for all such symptoms of social malaise. Says a Moscow sinologist: "The greatest danger facing China is not capitalism. You can treat bourgeois liberalism just as you would a case of the grippe. The real threat to China is a feudal way of thinking. It is like a chronic, incurable case of asthma."

At a time when the Chinese have paused to catch their breath, the Soviets have spurted ahead in the more nebulous area of reform termed glasnost. Chinese Kremlin watchers were stunned when Gorbachev rebuked at least 16 ministers and party officials by name in his June speech to the Central Committee plenum. And nothing in China can quite compare with Soviet TV shows like Good Evening, Moscow and Dialogue, which mix news of perestroika with round-table discussions. A recent broadcast pitted squirming agricultural officials against incensed consumers, who waved bags of tasteless, undersized green apples at the camera and demanded to know why anyone even bothered to - grow them. Says a Chinese economist: "In his policy of glasnost and political restructuring, Gorbachev has posed a challenge to the Chinese. Our reforms began at the grass roots. In the Soviet Union, change is coming down from the top."

Gorbachev so far appears confident that expectations about perestroika can be kept in check without imposing rigid limits. But the Soviet Union, like China, may find that the process of reform cannot keep pace with public demands for more democracy. A poll taken by the China Social Survey System in cities across the country in July showed that 93.8% of respondents believed it was necessary to reform the political structure. When the Novosti press agency surveyed a sample group of Moscow factory workers after the Central Committee plenum last June for their views on democratization and glasnost, 83% said neither had reached the necessary levels. A Western diplomat in Beijing explains, "Once managers begin making economic decisions for themselves, they will be less willing to have political decisions made for them." If so, then a third revolution in thinking may still lie ahead before the race to reform reaches the finish line.