The "Gorbachev Plan"

Basic Guidelines for the Stabilization of the National Economy and the Transition to a Market Economy. 18 October 1990.

Original Source: Izvestiia, 18 October 1990.

The country's president has sent USSR Supreme Soviet deputies a document entitled "Basic Guidelines for the Stabilization of the National Economy and the Transition to a Market Economy" based on the well-known programs elaborated by M.S. Gorbachev's and B.N. Yeltsin's working group.

The document's title speaks for itself.

It only presents basic guidelines for economic reform. They have been prepared with consideration for the wishes of the union republics and their interests, and each republic, on the basis of its own conditions, will elaborate and implement its own refom1 programs.

There is no alternative to switching to a market. All world experience has shown the viability and effectiveness of the market economy. The switch to such an economy in our society is dictated solely by people's interests and aims to create a socially oriented economy, gear all production to consumer needs, overcome the shortages and the disgraceful waiting lines, ensure citizens' economic freedom de facto, and establish conditions for encouraging hard work, initiative, and high productivity.

These basic guidelines are designed to be the basis for coordinated actions on the part of all republics and Union organs to stabilize the national economy and transfer to a market economy. Every sovereign republic has the opportunity to elaborate and implement a series of concrete measures to achieve the market switch with consideration for the specific features of their socioeconomic situation and national and historical features.

This difficult path has to be covered in the shortest possible time. The experience of applying stabilization programs in other countries and the calculations and forecasts that have been made with reference to our conditions show that this period may last roughly 18 months to two years. It is for this period that the additional powers granted to the country's president are intended.

The tasks of stabilizing the economy and transferring to the market are to be resolved in four stages.

Stage 1-Program of Extraordinary Measures

At the very outset the introduction of legislative acts enshrining the basic principles and directions of economic reform is to be announced and-this is the main thing--a system of measures to stabilize the national economy is to be implemented ensuring:

• the improvement of finances and the money supply by reducing the state budget deficit, suppressing the issuance of money, restructuring the banking system, and regulating enterprises' finances;
• protection for the population's money savings by raising interest rates at savings banks, balancing of the population's income and expenditure, backing for consumer goods production, and, on this basis, the restoration and normalization of the consumer market;
• the stabilization of reciprocal deliveries and the prevention, where possible, of a decline in production;
• the denationalization [razgosudarstvlenie] and privatization of property, and the implementation of land reform;
• the stabilization of foreign economic relations.

The most complex task at this stage is to curb the incipient rise in prices: to restrict the increase in wholesale and purchase prices, effect a phased increase in state prices for fuel, raw materials, and construction materials, and monitor the level of state retail prices for goods in mass demand. All this has to be done in such a way as to cover the growing-owing to purchase and wholesale price hikes-budget deficit on the one hand and prevent uncontrollable inflation on the other, and also to improve the commodity-money balance conditions for the subsequent accelerated transition to the market.

Stage II-Tough Financial Restrictions and a Flexible System of Price Formation

The most important thing in this stage is the consistent and gradual transition to market prices for a broad range of production and technical output and consumer goods. The steps taken during the previous stage should avert excessive price hikes. In the future inflationary processes are to be restrained by a tough financial and credit policy.

Fixed state prices for at least one-third of all goods--fuel, raw materials, and semi-manufactures--are to be retained at this stage, which is important in order to regulate the overall level of prices and state retail prices for essential consumer goods which determine the population's subsistence wage.

At the same time the scope of denationalization is to broaden, small enterprises are to be privatized, and a market infrastructure is to be developed.

Special steps are being taken to redistribute capital investments and other resources to sectors working for the population, and incentives are to be increased for their development and expansion.

The first result of the extraordinary measures and price liberalization will reveal itself in a marked improvement in the situation on the consumer market, particularly for goods sold at prices governed by supply and demand. The tougher and more consistent the steps taken are in the sphere of financial and credit policy-and to eliminate artificially hyped demand-the smaller the price rises will be. Goods will appear on free sale. That is the first positive result that may be achieved-and must be achieved without fail-from the reform.

During the transitional period, special mechanisms are to be introduced to provide social protection for the population's income, including indexation with consideration of retail price movements. At the same time, measures to support socially vulnerable strata of the population are beginning to be implemented.

Union republics and local organs of power can employ various measures to regulate prices, including interim price freezes for goods in mass demand in the event of excessive price hikes. They can introduce rationed distribution of a number of goods compensating producers and trading outlets from their budgets for losses incurred, and they can provide social protection for the population's income.

With a view to maintaining production and economic ties, a state contract system has been set up that will undertake to place state orders on a contract basis and distribute and regulate the prices for the output supplied under these contracts.

Stage III--Formation of the Market

The main task during this stage is to achieve the stabilization of the market as a whole for both consumer goods and means of production, broadening the sphere of market relations and establishing a new system of economic relations.

Contradictory processes will occur in the economy at this time. On the one hand, we can expect increasing saturation of the market with goods. The market infrastructure will develop at an accelerated pace and the influence of enterprise on economic activity will increase. The use of material resources must be more economical and production stocks will be reduced. The resources released will swell the market in means of production and help to stabilize it.

During this stage the stress will be placed on the formation of a housing market, the reform of labor remuneration, and the restructuring of mutual relations between enterprises and local soviets in the social sphere, along with further price liberalization.

The creation of a housing market is a necessary element in the transition to a market economy. It will make it possible to put one of the most important commodities into circulation-a commodity that is capable of swallowing up a considerable amount of the population's effective demand, promoting equilibrium in the consumer market and an increase in incentives to hard work.

It will also be necessary to restructure the labor remuneration system. The purpose of this is to abolish regulations and establish a state minimum wage for enterprises, with all forms of ownership based on a calculation of the minimum consumer budget in the light of the new level of expenditure on housing and on an extended range of goods and services as a whole, bought at market prices using personal income. A realistic minimum wage will be an important means of social protection for working people. Restrictions on the opportunity to earn money will be lifted at the same time.

In connection with these measures republics and local organs are working to remove enterprises' excessive and unequal burden in maintaining social facilities, thus facilitating enterprises' entry into market relations and boosting their competitiveness.

The conditions that take shape following the development of housing reform will promote the formation of the labor market. Trade unions will be strengthened as defenders of working people's interests, and unions of entrepreneurs and managers will be formed. On the basis of agreements between them, and with the state in a regulating role, it will be possible to organize a labor market and public supervision of the movements of incomes and prices.

Financial and credit restrictions will be withdrawn as competition, enterprise, and price stabilization develop. There will be changes in taxes and interest for credit in order to help revive business activity and increase investment.

Stage IV--End of the Stabilization Period

The main tasks in this period are to consolidate economic and financial stabilization, improve the consumer market, and, particularly, to ensure the accelerated formation of the competitive market environment needed for the fully fledged functioning of the market's characteristic self-regulatory mechanisms.

During this period there should be considerable progress in the de-monopolization of the economy, denationalization, and privatization.

Preconditions should take shape for the intensification of economic activity, above all in the light and food industry sectors, the agrarian sector, and sectors in the service sphere.

The predominance of prices governed by supply and demand in conjunction with a balanced budget will create the preconditions for resolving the key problem in the transition to a market economy: the problem of the internal convertibility of the ruble. The crux of the problem is to give all Soviet enterprises and foreign companies operating on USSR territory the opportunity to buy and sell freely at market rates the foreign currency needed to perform ordinary economic operations.

Internal ruble convertibility will open up extensive possibilities for an influx of the foreign investment that the country so needs for restructuring and retooling, and also to develop competition on the domestic market and overcome monopolies. It can be asserted that under the conditions in our country, this is an important precondition for ensuring that the market mechanism runs on full power.

The Consumer Market

The normalization of the consumer market is a socially very important part of the stabilization program. To achieve this it is essential, on the one hand, to find an effective use for the vast surplus money that the population has accumulated and, on the other, to increase the delivery of goods and services to the consumer market.

In order to resolve the first task, the intention is to expand the sphere of paid goods and services. Sale of housing, summer houses, construction materials, and various types of state property is to be increased, and charges will be made for long-term leasing of out-of-town plots of land. By redistributing construction organization capacities and providing them with additional incentives, by the end of 1991 we must construct additional numbers of dwellings [zhilye komnaty] and garages and prepare several million country plots for sale to the population.

It is also planned to introduce interest-free loans to enable the population to acquire materials goods in short supply in the near future: automobiles, personal computers, furniture, telephone installation, additional housing, summer houses, garages, country plots of land, and so on. The state is to provide guarantees and prices are to be fixed.

It is extremely important in this connection also to ensure the safety of the population's savings, reinforce their trust in the state, and divert money away from the consumer market. With this in view, interest rates are to be raised, primarily for fixed-term savings bank deposits.

Along with this all forms of expenditure by the population on production investment--on acquisition of means of production, shares and bonds, and on buying out enterprises--are to be mobilized.

On the other hand, steps are to be taken to expand consumer goods production and the sphere of paid services. Additional incentives are to be introduced for consumer goods production, including tax concessions and assistance for enterprises in stepping up production of these goods.

It is planned to start the switch to market prices-prices governed by supply and demand-with essentials; however, it is planned to set fixed prices for certain groups of these goods in the interim. The proportion of consumer goods and raw materials for their production in the import structure is to increase, notably through procurements by means of special-purpose loans on preferential terms. Normative commodity stocks in the trade sector are to be increased in order to check price rises and stop artificially hyped demand when prices are liberalized.

There is to be de-monopolization and privatization in retail and wholesale trade, public catering, consumer services, and also in a considerable proportion of the enterprises supplying them with goods. Incentives are to be provided for the activity of consumer cooperatives, trade and purchase cooperatives, and other trading enterprises, particularly those importing and selling goods in regions where there are problems in supplying the population. Measures to combat the shadow economy and attempts by its representatives to impede the development of competition in the consumer market are to be stepped up.

Ownership

In the near future it is intended to proclaim freedom of economic activity and the development of enterprise in the country, making provision for freedom to pursue economic activity for a variety of organizations and citizens, the creation of enterprises using a procedure whereby they apply for registration, and barriers to interference by state administration organs in the work of enterprises regardless of the f01ms of ownership and economic management.

At the same time lists of types of activity that are banned, governed by a state monopoly, or pern1itted only under state license will be approved at Union level and in the republics.

The formation of free commodity producers as a highly important element in the market economy necessitates the speediest removal of a large proportion of enterprises from state patronage and privatization. Privatization is not necessarily seen as a switch to private ownership alone, but as a more general process of changing ownership via the transfer or sale of state property on various conditions to collectives, cooperatives, shareholders, foreign firms, and private individuals.

These subjects of economic activity most fully accord with the demands of a market economy. Not only are they autonomous in their activity, but there are also economically responsible for the results of this activity-in terms of both current income and their own property. This ensures rational use of resources and hampers their unwarranted redistribution for consumption detrimental to the improvement of production potential.

Denationalization with the transf01mation of ownership can be effected by various methods. The specific avenues of denationalization will be determined depending on the particular features of the republics and regions, the specific features of the sector or production unit, the size of the enterprise, the level of stocks, and other factors.

Denationalization programs are to be mounted with the adoption of appropriate decisions at Union and republic levels in the form of decrees by the USSR president and by the supreme organs of power in the union republics. These documents will indicate the aims, principles, and main avenues of denationalization. The equality of all forms of ownership envisaged by the USSR Law "On Ownership in the USSR" is stressed. The right to private ownership is recognized. Guarantees of the right of ownership of corporate entities and citizens, including foreigners, are indicated.

The USSR State Property Foundation is in charge of all the concrete work of denationalization at the Union level. Similar bodies will be set up in the republics.

Immediate measures of denationalization and privatization are to be carried out first in those spheres where non-state structures are most advisable. They include trade, public catering, consumer services, repair and construction organizations, and also small enterprises in other sectors. At the same time the transformation of large and medium enterprises from various sectors of industry and other spheres into joint-stock companies and societies is to begin this year.

With a view to preventing abuses, including the laundering of illegally obtained funds, it is intended, when implementing denationalization, to ensure strict control by state organs and the public. It is envisaged that priority in buying property and shares will be accorded to labor collectives and their members and use made of various forms of aid, above all using the enterprise's funds, sales with installment payments, discounts, the granting of credit, and so on.

Land Reform

The key avenues in the establishment of a market economy in the agrarian sector are:

• the implementation of land reform and the creation of conditions for the effective functioning of various forms of ownership and economic activity, the elimination of the monopoly on land ownership, and the formation of a mixed economy in the agrarian sector.
• the elimination of administrative structures of state management of agricultural production, and abandonment of the administrative establishment of mandatory orders for agricultural produce;
• oto boost the prestige and increase the motivation of peasant labor and provide maximum incentives for enterprise and healthy competition among producers;
• othe elaboration and implementation of targeted programs for the development of the production and social infrastructure in the countryside with state financial backing;
• the provision of a social policy that accords with the needs and requirements of rural inhabitants, and the creation of socioeconomic guarantees of the peasantry's position in society. Union and autonomous republics are to adopt land codes and other direct-action legislative acts regulating land relations with reference to the specific features of individual regions of the country and conditions for granting land to everyone who wants it and who is capable of making effective use of it for agricultural production. Republic organs of power are to resolve the question of a worker's right to freely leave a state, cooperative, or other enterprise (association) with a plot of land and a share of the accumulated property, provided that he organizes autonomous agricultural production.

The republics' supreme organs of state power are to create committees on land reform tasked with conducting an inventory and assessing land, revealing where land is used inefficiently, and exercising land organization, consultative, and supervisory functions.

Work is to be carried out to transform inefficient kolkhozes [collective farms] and sovkhozes [state farms] by giving all or part of their land to cooperatives, leaseholders, peasant farms, and industrial and other enterprises to organize commercial agricultural production and also for personal subsidiary farming, collective horticulture, and truck gardening.

Prices

Free market prices are an inalienable element in a market economy. In order to ensure that the transition to such prices is less painful, it is intended to free prices-above all prices for consumer goods and services-from administrative control in stages. During the first stage, price control is to be waived for a group of nonessential goods.

However, in order to give the population social protection it is envisaged that state prices will be maintained for goods and services that f01m the basis of families' minimum wage (a range of foodstuffs and industrial commodities will be stipulated for these purposes). Local price hikes for individual commodities are also permitted by decision of the republics in the light of local conditions. Republic and local organs are to establish allowances to protect the population's income, in accordance with their capabilities, place orders for additional production, and where necessary introduce rationed distribution of these commodities.

In the future, retail price control is to be eliminated successively for groups of commodities in light of the specific position and situation in the market. In 1992, the intention is for prices to be controlled for only a narrow range of consumer essentials (certain types of bread and bread products, meat and dairy products, vegetable oil, sugar, basic medicines, school primers, individual children's goods, some transport tariffs, and tariffs for some public amenities).

The end of price control should, without fail, go hand in hand with although financial and credit policy and accelerated rates of denationalization, economic de-monopolization, development of competition and enterprise, and a market infrastructure.

In the event of excessive price hikes-where prices were freed earlier-republic and local organs are allowed to decide to set a maximum level for these prices.

During the transitional period the state cannot immediately abandon the policy of maintaining low retail prices for various goods and, consequently, price subsidies. However, a fundamental change is needed in the procedure for payment of price subsidies to ensure that goods are profitable to produce and sell and that, consequently, cheap goods do not become scarce right away.

Social Policy

A socially oriented market economy is an economic system where every group and social section of the population receives extensive opportunities to realize its life capabilities and requirements on the basis of free labor and increased personal income.

The new economic system reveals an opportunity, given the inclination, for people to start up a business-organize a cooperative, own a store, a restaurant, a private taxi, or set up a small enterprise or other economic entity.

The freedom to choose the way in which to apply their labor will also be an important factor in the improvement of peasants' living conditions. They will be able to choose between a large farm-a kolkhoz or sovkhoz; a small lease collective; or a private individual farm. There are prospects for a rapid increase in peasants' personal income, interest in which will be bolstered by an increasingly full counterflow of output from the city.

The market economy will provide extensive opportunities for the intelligentsia to exercise their accomplishments and abilities. Enshrining the right to intellectual ownership will create conditions and incentives for everything that is truly talented and original to flourish. There will be increased freedom to choose the forms of organizing the labor that society needs and to set up all manner of unions and associations.

The policy of increasing personal labor income, enhancing its role in meeting the population's socio-cultural and consumer needs, and thus wiping out freeloading will be an important element in the new social policy. A guaranteed level of social benefits, which should be regarded as a minimum level, will be provided via public consumption funds for all strata of the population.

In the conditions of the transition to market relations some population groups should be the object of special social programs. This applies primarily to the elderly and di sab led living alone or independently, and also to orphans and large families.

Wages will increasingly fully reflect real expenditure on the reproduction of the skilled work force, which renders investment in the education, training, and cultural and social development of the individual most effective. In the course of the pay reform, state wage rates are viewed as the minimum guaranteed remuneration for workers with the relevant skills. From this standpoint, they are binding throughout the country's territory and for all enterprises, irrespective of their form of ownership. And republics and enterprises can, at their own discretion, establish pay scales based on the funds at their disposal, but these may not be less than state tariffs.

In this sense, the state tariff system will be a factor in the social protection of working people and a powerful incentive for boosting production efficiency.

The new tariff system should simultaneously cover production and non-production sectors of the national economy so as to ensure that culture, health, and education workers have the same pay guarantees and do not lag behind workers in the production sphere.

At the same time a new system will be introduced for the hiring of enterprise leaders under contract, whereby the state tariff will also set the minimum level of pay.

All other pay issues-forms and systems of payment, bonuses, awards, supplements, and so forth-will be determined independently by enterprises without any interference from state organs. And there will be no restrictions on individual pay, which will be regulated solely by income tax.

Dividends from shares in enterprises and other income from property become new sources of income. When working people acquire shares they become the owners of their own plants, factories, sovkhozes, and other enterprises-which provides an added incentive to highly productive work.

Pensions, Benefits, and Grants

The Law on Pension Provision for Citizens has now been adopted and will come into force in the 1990-93 period.

An important feature of the new pensions systems is its linkage to the minimum consumer budget and the changing conditions of the market economy. The measures to alter the pensions system will make it possible to increase average pensions by approximately 50 percent.

As the economy becomes more efficient, centralized increases will continue in the future in various benefits associated with having and raising children as well as benefits for invalids. Student grants will be substantially increased out of state funds.

Republics can view the centrally set levels of pensions, benefits, and grants as representing the minimum guarantee of material provision for the corresponding categories of citizens. They are entitled to increase payment levels if they can find the necessary funds.

Moreover, the system of pensions, benefits, and grants may be reinforced by payments voluntarily undertaken by enterprises to their veterans, women, or young people going to study.

The switch to a market economy in our country is taking place in the context of a general shortage of consumer goods, particularly in the state trading system at state prices. It will take between six months and a year to normalize the consumer market and saturate it with goods. During this period, certain republics, regions, and cities will have to introduce distribution based on norms set by organs of Soviet power so as to ensure guaranteed access to primary necessities. And during this period the state will maintain relatively low fixed prices for primary necessities in the public interest. At the same time, in order to ensure that price rises do not exacerbate the people's position, we will need a system to protect their incomes against inflation. It is proposed to do this by means of various types of compensation, primarily by indexing incomes-that is, increasing them in line with the rise in the index of retail prices for a "basket" of consumer goods. This will be done publicly [glasno].

It is planned to index pensions, grants, and benefits 100 percent, while workers with fixed [tverdyi] pay scales and rates (servicemen, teachers, doctors, scientific workers, employees, and others) will receive up to 70 percent indexation, depending on the level of their pay. Wage funds at economically accountable enterprises will be indexed.

The indexation procedure will be regulated by USSR and republic legislation.

Employment Policy

The boosting of production efficiency, the elimination of unpromising or unprofitable enterprises, and the creation of new production facilities and sectors will lead to a redistribution of manpower-primarily in the services sphere, where new jobs will be created, as well as in cooperatives and the private sector. And some workers will temporarily find themselves excluded from social production. The task will be to minimize the period people spend without work.

A special state employment service will be set up at local soviets. It will not only provide a job search service, but also promote the organization of new jobs, reeducation, and retraining, supply career guidance, and provide material benefits for the temporarily unemployed. Local soviets will organize paid social work for the temporarily unemployed. It is fundamentally important that the employment service provided for people be free.

Special employment programs for the population will be implemented at the all-Union and republic level, above all in areas with surplus manpower. An employment aid fund will be set up.

In addition to the current system of material benefits for the unemployed, it is planned to introduce direct unemployment benefits when a worker is unable for certain reasons to find a new job or embark on retraining quickly.

The measures to improve the economy and switch to the market and the stages in their implementation are directly tied to political stability in society and the normal functioning of the organs of power and administration. The actual state of affairs requires the immediate introduction of amendments to the mechanism by which decisions are reached and implemented, as well as to the working forms and methods of all levels of legislative and executive power, and the enhancement of the personal responsibility borne by officials involved in implementing these program measures.

Source: FBIS-SOV-90-202 (18 October 1990) (abridged).