Encouraging the Soviets to Privatize

AMERICANS have a larger stake than they realize in the success of Mikhail Gorbachev's economic reforms. The Soviet economy is collapsing. If it cannot be put on a workable basis, the West may be called on to assist in subsidizing Soviet socialism in order to avoid conflict.

I believe it is much better to encourage the Soviets to privatize their economy than to find ourselves in the position of propping up socialism.

I recently returned from Moscow where I was invited to make the case for a free Soviet economy.

Under the auspices of the USSR Academy of Sciences, I told Mr. Gorbachev's reformers that private property and economic freedom work because they ensure that the costs of mistakes are borne by those who make them, thus preventing a country from being bled dry with subsidies and bureaucratic inertia.

The Soviet economy does not work because it is not free. Prices are not free to indicate shortages and surpluses; resources are not free to shift toward profitable activities and away from losses; capital is not free to move in accord with consumer demand. Everything is locked in place with managers producing irrational outputs that are often less valuable than the inputs.

For many years the Soviet economy was able to operate in this inefficient and cumbersome manner, because there was an abundance of cheap resources that could be used to compensate for the lack of incentives. Now these resources are used up, extraction costs are high, and the Soviets cannot feed their people or provide them with a bar of soap.

Compounding the problem is the 70-year-old absence of a rule of law. Without law to hold them accountable, local and provincial chiefs have achieved independence from Moscow. All over the Soviet Union, the equivalent of medieval robber barons control state budgets and succeed in diverting resources to their own uses.

The failure of the Soviet economy is a serious problem. Some Soviet economists now predict famine in the near future unless agriculture is privatized. A government with so many guns is unlikely to sit quietly while its people starve.

Truly to help the Soviets, we must convert them to the institutions that make us a productive and efficient society. Many in the West - especially those who stand to profit - believe that the Soviet economy can be saved with bank credits and technological transfers. Some members of the Communist Party Central Committee believe this, too, and it is a dangerous illusion.

The problem with the Soviet economy is much more fundamental. It simply lacks the social and economic institutions to be able to use capital efficiently. That is why only fundamental reform - indeed, a revolution from the top - can save the Soviet economy.

Nothing can be done until private property rights are established. Peasants will have to be given the land and workers and managers will have to become the owners of the factories. Once property rights are assigned, prices can reflect true values, and the Soviet economy can begin its recovery from 70 years of socialism.

All of this made sense to my sophisticated Moscow audience. Still the question arose, ``What do we do with the Communist Party.''

``Give them a disproportionate share of the new ownership rights,'' I said, ``and make them the idle rich.''

Soviet reformers saw this as a common-sense proposition. Historically, ruling classes have had to be accommodated or overthrown. Golden parachutes for Communist Party members is an inexpensive way of obtaining an efficient private economy.

We should help the Soviets privatize not only to avoid war, but also because we owe them a lot. They have proved conclusively that socialism does not work. No one can accuse them of halfhearted efforts or of failure to stay the course or go far enough. They went further than it was humanly possible to go, and 70 years is a lengthy experiment. We in the West are in the Soviet Union's debt for proving that socialism is the path to failure.