REMAKING THE REVOLUTION : New Soviet System : Perestroika: Bold Shift in Economy

MOSCOW —  Woolen tights, and the first blush of economic reform in the Soviet Union, have changed Lydia Petrovna’s life.

Only a few months ago, the 42-year-old mother of two was working as a loom operator in a Moscow textile factory, bringing home a paltry 100 rubles (or $160) a month.

Then, with little to lose but her poverty-level income, Petrovna decided to gamble on the success of Soviet leader Mikhail S. Gorbachev’s program to reorganize, decentralize and modernize the Soviet economy.

With a 200-ruble membership fee in hand, Petrovna joined 19 other women at her factory in forming a cooperative--a form of semiprivate enterprise permitted under new legislation that the Soviet leadership hopes will breathe life and vigor into the nation’s dismally primitive consumer economy.

Rented Knitting Machine

In the new cooperative, sponsored by her factory but managed by the members themselves, Petrovna now works at home in her apartment on an imported Japanese knitting machine rented from the factory, turning out 70 pairs of woolen tights a month.

For each pair of tights, a Soviet version of cold-weather panty hose, she is paid 4.50 rubles. The cooperative then sells them from a booth in one of Moscow’s farmers’ markets for the exorbitant price of 25 rubles.

“That’s a lot, but the fact is you can’t buy tights anywhere else in Moscow,” Petrovna said the other day. “You should see the women pushing and pulling to get their hands on them.”

More important for Petrovna, even after paying taxes to the state, she has nearly tripled her income, to 280 rubles (or $448) a month. And along with her co-workers, she is entertaining thoughts of building up capital, buying the knitting machines and opening a new business selling made-to-order knitwear.

“When I think about it,” she said, “I don’t know why anyone would want to work in a state factory anymore.”

Petrovna’s knitting enterprise is one of about 3,000 small cooperatives, most of them cafes and food shops, that have been organized across the country in the last few months. Under legislation that took effect last May 1, several thousand additional family-owned shops with no links to state enterprises have also sprung up, offering services from hair-styling to automobile repair.

These miniature businesses--licensed, taxed and closely watched by the authorities--are more restricted than similar small businesses in Poland and Hungary. But their emergence marks the first tentative blossoming of legal private and semiprivate enterprise in the Soviet Union since Vladimir I. Lenin’s comparatively liberal New Economic Policy--instituted in 1921 in the face of widespread discontent amid severe shortages--ended in 1928-29 with the consolidation of Josef Stalin’s dictatorship.

By such steps, in its 70th anniversary year, the Soviet leadership has begun a partial dismantling of the rigidly centralized economic structure that Stalin erected half a century ago to carry out his crash program of industrialization.

In its place, Gorbachev and his allies in the ruling Politburo are reaching back and borrowing features of the more benign and flexible New Economic Policy, which mixed elements of a market economy in consumer goods with state control of the “commanding heights” of industry.

Covers 11 Time Zones

With a swiftness remarkable for a country that stretches across 11 time zones and one-sixth of the Earth’s land surface, the leadership has begun a process of reorganizing the economy--a process that could bring the most sweeping social changes the Soviet Union has experienced since the end of the 1920s. Among the moves:

-- Starting in January, 1988, under a new Law on State Enterprises, the Soviet Union’s 37,000 centrally controlled industrial enterprises are to be given new freedom over the next two years to manage themselves, and the unfamiliar responsibility of paying their own way from profits, rather than living off unlimited government funds.

-- Some state firms have won permission to deal directly with foreign companies to buy and sell goods, rather than working through the bureaucratic morass of government ministries. Under new but still murky guidelines, a small number of Soviet enterprises may also negotiate joint ventures with Western firms, with foreign partners holding up to 49% of the equity.

-- The 49,000 collective and state farms that make up the country’s agricultural system are being given a similar but less clearly defined measure of autonomy. Also, for the first time in half a century, collective farms are being encouraged to organize their work around family units that are to cultivate parcels of state land under long-term contracts.

The aim is to raise productivity by restoring a sense of proprietary interest in the land among farmers, who now work essentially as employees paid for their time, not for the fruits of their labor.

Some Soviet economists believe that resistance from provincial officials and conservative ideologists can be overcome, that wide adoption of the new “family brigades” could lead eventually, as it did in China in the early 1980s, to the de facto decollectivization of agriculture in large areas of the historic Russian heartland. This would reverse a Stalin policy that cost millions of lives in the 1930s.

Industrial Restructuring

These and other economic changes that Gorbachev has set in motion in recent months are to take a major step forward next Jan. 1 with the restructuring of Soviet industry. The reforms are to be completed only in the next five-year planning period beginning in 1991, with the reorganization of the nation’s banking and credit system and the creation of a new branch of the economy in the form of an open, wholesale market in industrial goods.

If carried through, in the view of many Western and Soviet economists, Gorbachev’s reforms will mark a historic turning point in the way the Soviet state manages Soviet society.

But there is fear that before the reforms have a chance to produce an economic renaissance--if, in fact, they can--the transition to the new system of industrial management over the next two to three years will produce economic disarray. This is seen as likely to encourage a conservative backlash that would terminate or dilute the reforms and extinguish any hope for a long-term transformation of Soviet society.

Genuine Skepticism

The nation’s 18 million government and party bureaucrats, among others, have little personal stake in the success of reforms, and many are said to be genuinely skeptical about their feasibility. As part of the reform, 30% to 50% of these functionaries stand to lose their jobs over the next few years as ministries are consolidated and truncated in an effort to keep them from interfering in the day-to-day management of factories and farms. It is unclear what will happen to them, but many will likely be reabsorbed by other agencies.

More important, the Soviet leadership faces a skeptical, anxious and deeply conservative public--particularly the blue-collar work force--which has ample reason to worry that economic reform for the immediate future means harder work, lower pay, higher prices and no significant improvement in the standard of living.

Unlike Lydia Petrovna, who has benefited from the early stages of reform, many factory and retail workers in state enterprises have suffered wage cuts in recent months as the leadership has pressured managers to improve the quality of goods and services and to economize on wages. Coupled with talk by senior officials about the need for higher consumer prices, wage cuts have contributed to a mood of anxiety and resentment among workers.

In an interview at his Moscow apartment, Andrei D. Sakharov, the Nobel peace laureate whom Gorbachev released from internal exile last year, said he believes the Soviet leader’s program of perestroika , or restructuring the economy, “is extremely important and absolutely necessary for the country.”

But in expressing concerns that appear to be shared by many other Soviet intellectuals, Sakharov said he fears that the Gorbachev revolution, ambitious as it seems, may prove to be little more than half-measures, and risky ones at that.

“It is urgently needed, but it cuts across the grain of the system which has arisen in this country,” Sakharov said. “It is a dangerous thing. The danger is in (the risk of) obtaining worse results than we obtain now. People simply do not have the ability to work well. . . . There is a danger that things would just grind to a stop.”

The urgency of reform, despite the political risks it entails, is clear from the Soviet Union’s own economic figures.

In the 10 years before Gorbachev assumed power in March, 1985, economic growth declined steadily, to about 2% a year, only half the level of the mid-1970s. Moreover, 13% of the nation’s industrial enterprises and 30% of its farms were losing money.

Despite massive, sustained investment in agriculture, the Soviet Union remained unable to feed itself adequately. Growth in food production has barely kept pace with the population growth of 1% a year.

Imported Grain, Meat

Oil production, the Soviet Union’s main source of Western currency, had leveled off, while the country went on consuming a sizable share of its petroleum wealth in the form of imported grain and meat that cost billions of dollars.

Nearly three years after Gorbachev’s rise to power, the supply of meat and butter still falls far short of demand, as evidenced by continued rationing in a number of provincial cities, where adults are limited to as little as a kilogram--2.2 pounds--of meat and sausage and 200 grams--less than a quarter of a pound--of butter a month.

General living standards--symbolized by the one-fifth of the urban population that still lives in “communal” apartments, sharing bathrooms and kitchens with other families--are still among the poorest in the industrialized world. (The late Soviet leader Leonid I. Brezhnev postponed resolution of the housing shortage from 1980 to 1990; Gorbachev has put it off to the year 2000.)

Most important, in the minds of Soviet civilian and military leaders, when Gorbachev assumed power in 1985, the Soviet Union stood on the wrong side of a rapidly widening technological chasm with the West, as the computer revolution passed it by.

In speeches to the party elite and to the public on television, Gorbachev has cited some of these failings as evidence that the Soviet Union had reached “pre-crisis conditions” of economic stagnation that demand nothing less than systemic change in the society if the Soviet Union is to preserve its status as a great power.

While an outdated approach to economic management may be the main problem, some senior Soviet economists and foreign affairs specialists now acknowledge privately--not yet for the Soviet public--that an enormous burden of military spending, with its emphasis on heavy industry over consumer needs, is partly to blame for the country’s predicament.

‘Massive Investment’

“Much of what is now seen as the entirely unsatisfactory state of our economy is due to massive investment in the military,” a senior analyst at Moscow’s Institute for World Economics and International Affairs said in an interview. “We cannot underestimate what military spending has done to the economy.”

Along with other Soviet officials, the analyst, who asked not to be named, acknowledged that the 20 billion rubles listed every year in the official state budget as the figure for defense spending--$32 billion at the official exchange rate of one ruble to $1.60--in fact reflects what is spent “only for maintenance of (current) Soviet armed forces” and does not count military research and development or the production of new weapons.

Two Soviet analysts also acknowledged, in separate interviews, that the Soviet Union now devotes a much larger proportion of its gross national product to military spending than does the United States, as Western intelligence agencies have long contended. (Although the U.S. economy is almost twice as big as the Soviet Union’s, the huge U.S. consumer sector accounts for much of the difference.)

Both analysts indicated that no precise measure exists for the actual share of Soviet resources committed to the military. They said that a fair estimate of the real Soviet military commitment could be obtained by splitting the difference between the 7% of the U.S. GNP devoted to military spending and the CIA’s 15% estimate for the Soviet Union. This suggests a Soviet figure of about 11%.

Soviet and Western analysts agree, however, that the main cause of the country’s economic malaise is not military spending but a clumsy, inflexible and outmoded system of economic management.

In a searing assessment of what is wrong with the Soviet economy, published in June in the literary journal Novy Mir, economist Nikolai P. Shmelev wrote that “we now have an economy that is out of kilter in almost every way, which rejects scientific and technical progress, which is unplanned and, if one is to be totally honest, practically unplannable.”

Shmelev, who has emerged as one of the most outspoken proponents of radical reform, says his article has brought thousands of letters, mostly favorable. But the most important assessment came from Gorbachev himself. Gorbachev, in a televised public appearance in Moscow in June, was asked what he thought of the article, and he replied that Shmelev “gives a picture close to the real one.”

Unchallenged Chairman

The Stalinist economic structure Gorbachev has set about reforming, and partially dismantling, stands as one of the 20th Century’s costliest experiments in social engineering. Its central idea, cast in the first five-year plan announced by Stalin in 1929, was simple: to make the whole of Soviet industry one vast corporation, with the Politburo as the board of directors and Stalin as the unchallenged chairman of the board.

With the forced collectivization of farms in the early 1930s, which drove millions of farmers back to a form of serfdom, agriculture was merged into the corporate structure. By depriving farmers of the internal passports needed to travel within the country, Stalin effectively held them in bondage to the land. By paying them little for their work, the state was able to divert the nation’s resources to rapid industrialization.

Since 1932, industry and agriculture have been run by central and regional ministries on the basis of mandatory plans handed down from Gosplan, the State Committee for Planning.

Some 800 ministries in Moscow and the 15 constituent republics administer what some Western analysts have dubbed “USSR, Inc.,” distributing raw materials and manufactured goods, setting myriad specifications and prices and skimming off most of the revenues for the state treasury.

As a point of pride, the government has boasted in past years that this immense administrative task involves no fewer than 83 million supply-and-demand calculations each year and the setting of prices on 200,000 industrial and consumer items.

For ideological reasons, profit--the economic engine of capitalism--was replaced in the 1930s by an intricate mechanism of production quotas by which a factory’s or farm’s performance was to be measured.

Henceforth, in calculating wages and bonuses, what mattered was how many thousands of tractors or millions of shoes or tons of potatoes were produced, not whether the tractors ran or the shoes fit or the potatoes were actually eaten.

Feedback Severed

In directing the economy from above through the quota system, Stalin and his heirs severed the feedback that in Western economies allows consumers--families, farms or other factories--to dictate their demands to producers for the assortment and quality of goods.

The producer became czar, and the impact on quality was as universal as it was disastrous, reflecting itself in a shabbiness that pervades Soviet society.

Half a century later, the result, the Soviet leadership now acknowledges, is an irrational economy that produces more shoes, tractors, steel and machine tools than any other but satisfies no one. According to Soviet economists, no more than about 10% of the country’s industrial production measures up to world standards of quality and technological advancement.

Soviet shoe factories, for instance, churn out 800 million pairs of shoes and boots a year, almost three pairs for every man, woman and child. But as economist Shmelev noted and almost any Soviet adult will confirm, buying a decent pair of shoes is a problem.

“It’s a question of quality,” Shmelev said in an interview. “Nobody wants to buy shoddy footwear.”

Vast quantities of Soviet-made shoes pile up unsold in warehouses while the state duly pays the factories that turn them out as long as they meet their production quotas. Meanwhile, some of the longest lines in the Soviet Union are to be found in front of shoe stores. From Riga to Vladivostok, shoppers wait for hours to snatch up the 100 million pairs of shoes the state buys abroad each year.

As mountains of unwanted goods pile up in warehouses, mountains of cash--an estimated 350 billion rubles--have piled up in savings accounts and mattresses, representing enormous, pent-up consumer demand. So much money is held in private hands in this cash-and-carry society that shortages of bank notes are occurring in some regions.

More than just a source of endless inconvenience, poor quality is sometimes a matter of life and death. According to Soviet press accounts, defective television sets caused 40% of the 19,000 residential fires in Moscow in 1986.

“The situation is as follows,” Gorbachev said in June in a pungently worded speech on his reform program to a plenary meeting of the Communist Party’s Central Committee, which approved the new law on industrial reform. “Under the effect of the present system, producers find it disadvantageous to use cheap raw materials and inexpensive products; they find it disadvantageous to improve output quality; they find it disadvantageous to introduce the achievements of scientific and technical progress.

‘Geared to Mediocre’

“Such an economic system virtually eliminates the dividing line between enterprises that work well and those that are systematic laggards. . . . Our economic mechanism, whether we like it or not, is geared to mediocre and even substandard work.”

The Volga Pipe Mill is a case in point, brought to light by the Soviet press last year. According to Pravda, the Communist Party daily, the plant found a technique for producing high-quality, thin-walled steel pipe half the weight of standard pipe. If widely adopted, the technology could have saved the state hundreds of millions of rubles’ worth of steel each year, but a problem arose.

The Volga plant’s performance, and thus its allotted wages, were based on the value of its output. Since the thin-walled pipe cost less to produce, its value was lower, and the plant failed to meet the total value of output demanded by planners. Nor were construction enterprises eager to buy the pipe, because its lower cost would have reduced the total valuation of their output.

In the end, because the Volga Pipe Mill had produced a superior product at lower cost, wages at the plant were cut 15%.

Similar economic distortions run throughout Soviet industry. For example, because industries pay the state for fuel and other raw materials only on paper, and the prices are low, factories tend to stockpile all they can.

The prudent manager also keeps extra workers on hand so that when harvest time comes around, and the authorities dispatch hundreds of thousands of urban workers to the farms to help dig potatoes and carrots and cabbage by hand, factory production will not stop altogether.

“Huge mountains of equipment, raw materials build up (at industrial plants) just in case,” said Viktor P. Loginov, the deputy director of the Academy of Sciences’ Institute of Economics. “Just for ‘emergencies’ when the plan is increased, but without any additional raw materials.”

The result is that billions of rubles’ worth of steel, cement, fuels and other raw materials have accumulated on factory lots across the country amid chronic shortages of the same materials.

Similarly, economist Shmelev noted, 20% of Soviet industrial capacity is currently idle--in some branches the figure is twice as high--because of labor shortages, while 25% of the industrial labor force is actually redundant. A major challenge facing Gorbachev’s regime is how to redistribute surplus labor without resorting to unemployment.

The problems of Soviet agriculture are no less severe. The government has poured 600 billion rubles into agricultural development programs over the past 20 years, but wasted much of it on ineffective soil improvement schemes. The net result, one economist, M. Y. Lemeshev, told television viewers last June, is that “we have achieved practically no growth.”

Vital Investments

At the same time, the state has failed over the past half a century to invest adequately in storage facilities, roads--a quarter of Soviet farms have no roads connecting them to rural centers--and in modern methods of food preservation, packaging and transportation.

Frozen foods, for instance, are still virtually nonexistent in the Soviet Union. The only canned goods commonly available are peas, stewed fruit and fish.

In the absence of modern amenities in the countryside, millions of farm workers have migrated to the cities, leaving behind thousands of ghost villages and a chronic deficit of farm labor.

“We have pumped everything out of our rural areas, we have squeezed them like a lemon,” said an economist with close ties to Gorbachev’s advisers. “We have been destroying our agriculture for so long, what do you expect? What we have gotten was inevitable.”

The bottom line of rural neglect is that between 20% and 30% of the food produced on Soviet farms spoils before it reaches consumers. The losses include a quantity of grain equal to what the Soviet Union buys each year from the United States, Canada and Argentina. This year, amid heavy fall rains, 60% of the potato harvest--more than 50 million tons--is rotting in the fields.

“Elimination of these losses would make it possible to increase (food) consumption resources by 20% to 30% and save substantial funds,” Gorbachev observed in June. “This arithmetic should be clear to a fourth-grade student.”

The arithmetic of food price supports is no less bizarre. As a symbol of social justice, and out of fear of popular discontent, the state has left the basic price of meat unchanged since 1962, when a price increase by Nikita S. Khrushchev triggered riots in some cities that the army put down with gunfire. Similarly, the prices of milk and bread have changed little over the past 20 to 30 years.

Actual production costs, however, run twice as high as consumer prices. As a result, the state currently pays 75 billion rubles--more than four times the 16 billion rubles it spends on national health care--to subsidize bread, meat, milk and other foods and artificially low apartment rents.

Yet at about 30 cents a loaf, bread is so inexpensive that farm workers often feed it to their chickens and pigs, in violation of a law reserving bread for human consumption.

In a speech from the Arctic city of Murmansk in October, in which he outlined the case for food price increases and the need to put these subsidies to better use, Gorbachev said that artificially low prices had so devalued food in the minds of citizens that “one can see children using a loaf of bread as a football.”

The remedies Gorbachev has proposed for industry, agriculture and the consumer sector would bring fundamental changes if carried through, but Western and Soviet experts agree that it is too early to tell whether the medication itself will measure up to the potency of the prescription.

In industry, Gorbachev has called for replacing up to two-thirds of industrial equipment by 1990, relying on an 80% increase in investment in the heavy machine-building sector to refurbish the rest of Soviet industry.

In 1988, two-thirds of industry is to shift to a new basis of management featuring, on paper at least, a large dose of self-financing and self-management. The remaining third of industry is to follow in 1989.

Diversification Offered

Under the new Law on State Enterprises adopted in June, state orders for such necessities as tanks and turbines are to take up only part of a factory’s capacity, leaving it free to manufacture goods of its own choice and design under contract to other enterprises or to the retail trade system. Buyers in turn can shop for price and quality, generating pressure on industry to seek innovation and quality.

In this way, it is hoped, consumers will regain precedence over producers.

Mandatory plan quotas are to be abolished and replaced with “suggested” guidelines from the ministries for “orienting” a factory in drawing up its own plans. The state will take its share of profits, leaving the factory to divide the rest to pay for capital investment, research and amenities for its workers such as housing.

In the hope of stimulating greater interest among workers in the fortunes of the workplace, factory directors are to be elected from a slate of candidates, who will still, however, be approved by higher authority.

Wages Tied to Performance

More important for workers, wages are to be tied to job performance--a new experience for many who take the view, as the popular Soviet maxim puts it, that “it’s better to be paid 150 rubles and do nothing than to work for 1,000.”

Along with autonomy comes the freedom to fail. The state will still grant loans to faltering enterprises, but now the loans will have to be paid back, with interest. Soviet leaders have promised not to permit unemployment, but it will be possible, on paper at least, for an enterprise to undergo bankruptcy and reorganization.

For all its departures from past practices, however, the new law is vague on a number of key points that reflect what one well-informed Soviet economist calls a “fierce struggle” between the proponents of radical reform and party conservatives seeking to preserve a greater degree of ministry influence over industry.

Reform proponents argue that these measures can work only if the grip of the ministries is broken and they are relegated to long-term strategic planning. The ministries’ grip--and the independence of Soviet industry--in turn depends on the proportion of state orders to be imposed on factories, and the share of profits the state will extract.

Still Under Discussion

These two points were avoided in the June law and, according to Soviet officials, are still under discussion. Loginov, of the Institute of Economics, said the share of state orders probably will range, at least initially, from nearly 100% in defense and heavy machine-building plants to 20% to 30% in consumer industries, with an average share of 50%.

Should the ministries succeed in using the leverage of state orders to dictate management decisions, Loginov said, the point of the reforms will be lost. “If that happens,” he said, “this will be the old (centralized) planning under a new name.”

The Soviet Union, in contrast with China, has emphasized industry over agriculture, at least in the early phase of reforms. As a result, the outlines of Gorbachev’s strategy for agrarian revival are less clear, and in some ways contradictory.

His initial step in 1985 was to consolidate six ministries into one superagency called Gosagroprom--a compression of “State Agro-Industry.” Thousands of bureaucrats lost their jobs, but the new colossus is nevertheless coming under criticism for its ponderous inefficiency.

In an attempt to boost farm income, collective farms have been allowed to sell more of their produce on the open market, but relatively few have benefited so far, partly because they lack transportation--one reason that so much food rots in the fields.

Gorbachev’s call for the revival of small-scale family farming on existing collective farms is intended to spur productivity by giving workers the same proprietary interest in state lands as they now display on the tiny private plots allotted to each family. Carefully tended--even as crops rot on adjacent state fields--these plots occupy only 3% of the arable land but produce 30% of the country’s meat, milk and fresh vegetables.

The concept of “family brigades,” however, has met a lukewarm reception so far. Several thousand families have signed contracts, usually for five years, to till small acreages using the equipment of their collective farms. But economists acknowledge that local officials often resist this new measure of autonomy for farmers, and the peasants themselves are hesitant about embracing a new and still vaguely defined relationship with the state.

To overcome this, a new law setting out the rights and obligations of family brigades is in preparation and is likely to be taken up by a special meeting of the party Central Committee next spring. According to Soviet officials, the law may permit lifetime leases of land, at least in areas of northern Russia with the poorest soils--the historic Russian heartland--where agriculture is in the direst straits.

“Here, I am afraid that in its traditional form, the collective farm will hardly survive,” economist Shmelev said in an interview. “People have lost the habit of operating in such ways. We must convince them that this is not a short-term thing, but a change that’s here to stay for the foreseeable future.”

The Soviet public also has greeted the new semiprivate cooperative cafes and shops with mixed feelings. (Cooperatives are staffed and managed by private individuals under the sponsorship of a state trade organization.) Some Russians are delighted at the sudden surge in the quality of food and service they provide, while others--a great many others, judging by newspaper reports--are horrified at the prices.

At 10 rubles a kilogram, sausage costs more than twice the going rate in state stores--when it can be found. Cooperative cafes are charging up to seven rubles for lunch, or 10 times the cost in a state-run cafeteria, a significant bite from the average monthly salary of 190 rubles.

Couldn’t Afford It

“I know you probably can’t eat lunch in New York for seven dollars, but for us it’s a lot of money,” the economist Loginov noted. He said he had tried a new co-op cafe near his office, and acknowledged that it was better than the state cafeteria it replaced, but decided that he could not afford it.

For many ordinary Russians, unaccustomed to such sharp price increases, the new shops, the blunt talk by Soviet leaders about the need for general price increases, and the approaching shift in industrial management are deeply unsettling.

Opinion polls in the West show that Gorbachev has won a higher level of esteem than any previous Soviet leader, but his popularity among Soviet workers may be considerably lower.

Authorized Rejections

Several million of these workers, already resentful at the curtailment of vodka sales in the nationwide campaign against alcoholism, felt the first pinch of economic reform at the beginning of the year as the government imposed state quality control commissions in 1,500 factories, with an emphasis on those with the worst reputations for shoddy output.

Gospriemka, as the commissions are known, were authorized to reject a factory’s products, and did so with a vengeance. According to Soviet officials, the commissions have rejected a monthly average of 90 million rubles’ worth of industrial and consumer goods. Many workers have seen their wages cut and there have been scattered protests on factory floors.

Industrial plants are also changing from single shifts to double and triple shifts, and many workers for the first time are coping with the hardships of night work. Moreover, in retail shops and consumer service organizations, a new system for calculating wages has slashed the pay of many employees by 5% to 10%, stirring bitter remarks about Gorbachev.

“We have a political guarantee from top-level leadership that all these reforms will be carried out in the interest of consumers, and not at their expense,” economist Shmelev said. “Nevertheless, people are asking questions, and we still have a lot to explain to them.”

The combination of an anxious public, a bureaucracy fighting to preserve its prerogatives, and conservative skeptics in the party waiting for Gorbachev to stumble adds a daunting political risk to the most complex economic reforms the Soviet Union has yet attempted.

Yet the spokesmen for reform--there are no self-identified opponents--shrug and say the country has only two ways to move: forward or backward.

“In fact, now we just don’t have any choice,” Shmelev said. “It’s either restructuring or return to the position our country occupied in relation to the West in 1913”--the last peacetime year before World War I brought the end of czarist rule, and the Bolshevik Revolution.

Thursday: What glasnost does and doesn’t mean.

A team of Times reporters spent a month traveling throughout the Soviet Union, interviewing hundreds of Soviet citizens, for this portrait of the world’s other superpower on the 70th anniversary of the Bolshevik Revolution.