How Communists Beat Inflation

Shh. . . they subsidize, switch and cheat a bit, that's how

Officially, as the Russians and their East European satellites see it, inflation is a disease unique to capitalism. "With the exception of the war years," triumphs Nikolai Glushkov, chairman of the Soviet State Committee on Prices, "there has never been any inflation in the U.S.S.R., nor does any exist today." Now let us all laugh, comrades. The East bloc, like the West, is suffering a severe dose of rapidly rising consumer prices. It is not called inflation but "an adjustment in the state pricing structure." Inflation by any other name stinks as badly.

Since 1977 Russia has ordered four waves of price increases covering everything from books and cut glass to gasoline, plane fares and chocolate. Last July Soviet cars jumped 18% and carpets and restaurant meals rose 50%. Czechoslovakia lifted its rate for children's clothing, fuel, postage and rents, while Hungary raised the price of bread, flour, sugar and some meats by up to 50%. The quintessential Hungarian paprika rose 28%.

It is difficult to state the real level of inflation, Eastern style. Even those governments that admit to a low level of "inflation" cook the books and obscure the situation with huge state subsidies that hold down prices of certain essentials. The Soviet Union will spend about $31 billion this year to restrain the retail price of food; frozen turkey sells at $1.81 per lb. and milk at 20-c- a pint. It will also spend $7.5 billion to hold average monthly electricity and heating bills to $4.50 and the monthly rent for a standard three-room apartment to $37.

Rumors of forthcoming official price rises constantly sweep East bloc countries and produce sporadic shortages as shops are cleaned out. Buyers also suffer from hidden prices that the state slides in without fanfare. A product--for example, a $45 electric razor--suddenly might be given a new model number, a different color or a fresh package, and a new price: $58.

Alternatively, the state manufactures both high-and low-priced versions of, say, furniture. But, in the old bait-and-switch technique, the cheaper items are often not available. The price of basic bread in Poland has remained officially unchanged for 15 years at 6-c- per lb.; but newer-style and more popular breads of higher quality that contain honey or bran and cost up to three times as much are also frequently unavailable.

With some exceptions, the price of food and most essentials is indeed low, but there is rarely enough of anything that is popular. It is impossible now to buy detergents in Moscow, and meat is in chronic shortage. Even in summer, fresh fruit and vegetables can be hard to find. Most of these "luxuries," however, are available without long waits at the free markets where farmers sell produce from their private lots for inflated prices. Beef and pork go for around $4.07 per lb. rather than $1.36 in the shops, while potatoes, carrots, tomatoes, oranges and apples are all on sale at prices roughly six times higher than the official level.

As in the West, a major reason the East bloc's surging prices is the inflation in world oil. Russia is energy self-sufficient, and it supplies European satellites with about 80% of their needs. The prices of that crude are based on an OPEC formula, and they are going up--albeit at a slower rate.

Worse, Soviet oil production is falling below the target set in the 1976-80 five-year plan, and Moscow has begun to put a ceiling on its shipments. The East Europeans find it difficult to get more from OPEC because the cartel does not want to sell for Communist currencies. What can OPEC do with zlotys or rubles?

Among other reasons for Communist inflation:

> Foul weather. Last winter was the coldest that the Russians have suffered for 75 years; it damaged power lines, rails and roads and paralyzed production across much of Eastern Europe. East Germany, the world's largest brown coal producer, was forced to import coal from the West. Later, flooding in the north and droughts in the south hurt several countries' harvests and forced expensive purchases of Western grain.

> Lagging technology. This results in generally low-quality goods that are hard to sell in the West. The inability to export much makes it difficult to buy the advanced machines that could produce goods more cheaply. The debt to the West of the Comecon nations is estimated to be $54 billion. In Poland, 50% of all hard currency earned this year from exports will go to pay interest, and that kicks up price levels.

> Low productivity. Output of Soviet steel, chemicals, fertilizers and other industrial basics is below last year's. The satellites also suffer from production blahs. One reason is the lack of advanced technology, but Marxist ideological strictures do their part. Some countries place a ceiling on the bonuses that can be awarded to individuals for higher output, and many employees prefer to clock out and work at second jobs in the growing "underground" economies.

> Rigid controls. Strict centralization of planning curtails flexibility and produces inefficiency. Last April East Germany set the prices that state industries will pay for raw materials in 1980; there is no provision for the government to pass on to those companies subsequent increases.

Of course, none of these disadvantages will be easily overcome. Since the satellites in the 1980s will almost certainly have to turn increasingly to OPEC for oil, there will be more inflation and shortages. That is causing considerable worry among the commissars. The trade-off for the deprivation of individual rights was always supposed to be steadily improving economic conditions. That is now proving ephemeral. So disillusionment, discontent and defections to the West are reaching epidemic proportions. If prices continue to soar, the political explosion could be immense.

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