More Pain Than Gain

By George M. Taber

At a Moscow supermarket across from the Kiev railroad station as the New Year opened, shoppers made their way past cheerless holiday decorations toward the display case in the processed-meat department. There they confronted a Muscovite consumer's dream: not sugarplum fairies but kolbasa sausages piled high on chipped metal trays. Yet there was no buying frenzy. The price per kilo was 43.75 rubles, compared with only 2.20 rubles less than a year ago. Grumbled a middle-aged woman overcome by price paralysis: "What a nightmare!"

All across Russia last week, long-suffering consumers came face to face with the free market, as the government began one of the most daring economic reforms ever undertaken anywhere. Boris Yeltsin had freed prices, and was setting the country on a crash course toward a market system. The prices of a few basic commodities, such as bread and gasoline, remained controlled -- though they tripled or quadrupled overnight. But those of all other products were simply set free for the first time in more than seven decades.

Government economists predict that at first prices will soar and even more shortages may result as people hoard in expectation of still higher prices. But within a few months, they argue, the cost of goods will begin stabilizing and more products will be available than have been seen in years.

Free prices are only part of the shock-therapy program the Russian government is putting in place. Yeltsin is also introducing a massive privatization of industry, agricultural reforms to break up state farms, and tough new monetary and fiscal policies. Says Jeffrey Sachs, a Harvard economist who is advising the Yeltsin government: "All this is like jumping out of an airplane while you are still sewing the parachute. But they have no choice -- the plane's crashing."

The Russian economy has been tottering on the brink of collapse. Although no one has very accurate figures, prices increased an estimated 50% in December alone. The ruble has entered the funny-money category: it used to have an official exchange rate of 1.8 to the dollar; now a greenback fetches 110 rubles legally, and more on the black market.

The secret of success for such radical reform is the courage to stick with it until the program works. In his New Year's message to the Russian people, Yeltsin warned that they would have to endure six to eight months of hardship. Such a short period is wildly optimistic. Rising inflation will undoubtedly be followed, at least temporarily, by rising unemployment if the government pursues its privatization policy and demilitarizes the economy.

Yeltsin can never forget that the Bolshevik Revolution came to power on Lenin's promise to give the people bread. The shock-therapy program will be under pressure to show some quick results, or popular unrest could grow. An elderly woman begging on a Moscow street corner last week cried, "Please give me some money. I cannot even afford to buy bread now." Yeltsin has given the Russians pain; now he must deliver the gain.

With reporting by David Aikman/St. Petersburg and Yuri Zarakhovich/Moscow