Trip to Russia and China
Jude Wanniski
October 4, 1983


Executive Summary: On Sunday afternoon, August 21, I began an 18-day "People-to-People" tour of the U.S.S.R. and the People's Republic of China. The tour group of 24 men and 12 women was composed largely of independent oilmen and their wives, members of the Independent Petroleum Association of America, a Polyconomics client. The trip was especially illuminating to those of us who had visited neither country before; the members of the touring party —inquisitive, politically active, successful entrepreneurs — were serious about learning as much about the politics and economics of the two Communist countries as they could. There were meetings with oil-ministry officials but no great emphasis on matters relating to petroleum.

There was sufficient time in five cities to get a rough feel of things: Leningrad, Moscow and Baku (Azerbaijan) in the U.S.S.R.; Beijing and Shanghai in the PRC. The tour overlapped the fatal trip of Korean Airlines' flight 007, news of which reached us in Beijing on the Voice of America 36 hours after leaving Moscow. For analytical purposes, my vantage point was extraordinary.

The whole experience, in fact, turned out to be more valuable than I could have anticipated. It forced adjustments in my preconceptions of the Soviet Union and China at a time when U.S. relationships with both nations are undergoing dramatic change, and at a time when new tensions are causing foreign affairs to bubble to the top of the political cauldron everywhere in the West.

The Soviet Union, I found, is in much worse economic condition than I'd expected, in a way making it more dangerous than I'd believed. China is surprisingly further along a "capitalist road" than I'd thought, and while political reforms lag liberal economic reforms, there is exciting promise for the future.

Trip to Russia and China

There is an economic depression in the Soviet Union, but not of the kind that is characterized by high unemployment. There is no "unemployment" at all in the USSR, and for the first days after arrival the fact is a bit uncomfortable to an American. The Intourist guide, a smart, sophisticated woman in her fifties, makes frequent reference to the absence of unemployment and sly mentions of the jobless picture in the U.S. Radio Moscow, we discover, makes daily references to U.S. and Western unemployment in its news broadcasts, and the message has been so hammered home that a young man, encountering an American on Leningrad's main street, asks solicitously if he is without work. A member of our group comments on this "benefit" of the Soviet system, a troubling point.

By our last days in Moscow, though, the point no longer troubles. By then, it strikes one that the Soviet Union is not a nation-state at all, but a vast national penitentiary. Everyone is guaranteed a minimum standard of living, everyone works and eats and has medical care and shelter. But the same can be said of Leavenworth.

The metaphor is neither inaccurate nor unfair. We'd been aware that political prisons in many forms exist within the Soviet Union, but there had also been a casual assumption that the ordinary citizen is not directly touched by the Gulags. So it comes as something of a shock to realize that there is no Soviet citizenry. There are only inmates. There are wardens, guards, trustees and inmates. The metaphor helps explain the mental depression that creeps over us as the stay lengthened. At first you might assume the people of Moscow and Leningrad just happen to look grim, joyless, vacant, as we perhaps might seem when riding the Lexington Avenue Express. But beyond this normal big-city grimness there is a desperation and hopelessness, long-time inmates who have persuaded themselves that things will never get better and they can never get out.

There is no unemployment, but still there is a serious economic depression, a depression characterized by an incredible paucity of both goods and services dribbling out of a fully-employed work force that is really not working. There is literally almost nothing to buy with your roubles in the Soviet Union that is worth having. Spend an entire afternoon in Moscow wandering through the department stores along Kalinin Prospekt, the country's closest equivalent to New York's Fifth Avenue. There is only junk, absolutely nothing anywhere of either quality or style, and throngs of listless shoppers picking their way among items of houseware or apparel that in the United States could only be found at a mission or perhaps a final K-Mart clearance. And this is the best available in all the Soviet Union.

We've all heard of the endless lines, the meager supply of goods allocated by queuing instead of price. But it's a shock when you walk through supermarkets in what are said to be the more desirable sections of the cities and see the abysmal quality of the goods. Last week's produce. Chickens that look like they were starved to death. Women lined up to buy cuts of meat that look like they might have been hacked out of a rhinocerous with random blows. Only the bread looks appetizing and relatively cheap. (On the last three days in Moscow I was so upset with the deplorable food served at supposedly the finest restaurants available that I ate only bread and ice cream.) We heard before coming that there were quality goods reserved for the political elites, in special shops. But the difference can hardly be worth noting. We saw not a single sign of opulence. Not a well-dressed Russian anywhere. And on the streets, young men approach with offers to buy my belt, my watch, my fountain pen, at such extravagant rouble prices that I might be tempted if I didn't already realize there was nothing I would want to buy with the roubles. In the hotels, you can buy undrinkable Russian beer for roubles, but for anything imported, only hard foreign currencies are accepted.

Wages range from 100 to 500 roubles a month — a rouble worth roughly a dollar. And with everyone guaranteed the basic necessities free or almost free — an apartment including telephone and utilities is had for 8 or 9 roubles a month —there is plenty of discretionary income. But with little of value to buy, the savings rate is the highest in the world and the government banks bulge with rouble deposits. Perhaps the people expect an improvement in the economy will occur and consumer goods will someday be available. There's also an incentive to save the 10,000-plus roubles it takes to buy an auto or the 50,000-plus roubles it takes to acquire a "dacha," or country house. We're also told people save to travel domestically, this being one way to consume rouble income and display relative "wealth." But the government really had no room to encourage greater productivity through higher money wages. The lines and the waiting lists would simply get longer.

The line we get is that the reason for the shortages is a manpower shortage linked to the 20 million Soviets who died in World War II, a ridiculous idea. It's only slightly more plausible to suggest, as we heard at the American Embassy, that the shortage in consumer goods exists because the military claims so much of the nation's resources. With 275 million people compared to our 237 million, the Soviets have a Gross National Product that could only be generously estimated at half our $3-plus trillion. Yet, at least until the Reagan years, they were allegedly outspending the U.S. in real terms on defense.

Assuming the most optimistic arms agreement imaginable, which becomes less and less imaginable in the chill between Moscow and Washington, there would be hardly a perceptible rise in the Soviet standard of living. The problem isn't in budget allocations (any more than U.S. economic problems are being caused by government borrowing). The fact is that the socialist framework itself has worn out and can only be invigorated by reforms which increase the efficiency of the system and get the fully employed work force working.

As an example of the colossal waste in the central-planning system, we saw throughout the three cities we visited hundreds of massive construction cranes sitting idle at building sites. Men, material and equipment are moved about according to shifting political priorities, which leads to staggering losses of efficiency and productivity and in these construction cranes alone, billions of dollars in grossly underutilized capital. In Leningrad, the guide boasted that each day in the city 127 apartment units are completed—which would be enough to maintain the housing stock in the city of 4 million. But we saw no construction workers anywhere during the three perfect-weather, midweek days spent there. The only vigorous work activity seen anywhere is from the old ladies who sweep the streets. The service in the hotels is uniformly lackadaisical and at times offensive. At the year-old Pulkovskaya Hotel in Leningrad, run by the state to try to earn hard currencies from tourists, I asked a waiter for a second cup of coffee at breakfast and he snapped "No!" One pot for our table of eight, and that's that. There's no tipping permitted and the service people get paid whether or not there's any business, with no bonus even if revenues double or triple. They stand about. The state loses foreign exchange that the tourists would pay out for an extra cup of coffee and a tip, if these were available, and the tourist goes home and discourages his neighbors from traveling to the Soviet Union. Intourist complains that a mere 20,000 Americans visit annually, down from 10 times that at the peak in the 1970s.

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There is a slight contrast in Baku, capital of the autonomous Republic of Azerbaijan and one of the earliest oil regions of the old Russian Empire. The city, about 3,000 miles southeast of Leningrad and a scant 200 from Teheran, has a more unkempt look and the hotel rooms at their best are deplorable. But the people seem far less forlorn than the Leningraders we'd left, with more vitality and eagerness to please, along with open disdain for the white European Russians who rule from Moscow. The Russians are just as blatant in their patronizing attitude toward these "Eastern" comrades in this Moslem region that adjoins Iran. In conversations with white Americans, incidentally, Moscow Russians are evenly more openly racist toward blacks, as if there is common consent that "blacks should all move back to Africa and stay there," as one Moscow woman volunteered. (The American Embassy in Moscow confirmed my small opinion sample on this point.)

The primary reason for the greater vitality in Azerbaijan seems to be the greater leeway permitted this "autonomous Republic" in its adherence to Marxism-Leninism and a bit more tolerance of the "capitalist road/' While the standard of living has been in decline since about 1978, Azerbaijan has probably improved on the strength of the agricultural reforms that increased private production and collective incentives. There are more automobiles per capita in Baku than in either Moscow or Leningrad, and they honk their horns freely despite a national prohibition against horn-honking. In Moscow or Leningrad, horns are silent.

It's said that the high auto population has to do with the number of oilfield workers around Baku, among the highest paid of all industrial workers. Yet it is also freely disclosed that there's a serious problem getting people to work in the oil fields, even at the higher wages. With so much wage compression in this egalitarian system, why knock yourself out in the oilfields if you can earn a somewhat lesser amount by doing far less strenuous work? Especially when there's so little a rouble can buy anyway?

A separate, related problem in this centrally planned economy is the glut of professionals, being cranked out relentlessly by an education system that need not respond to the demands of the marketplace. A Baku oilfield superintendent, cheerfully explaining why there were such few signs of work in his oilfield, said the government keeps sending him engineers instead of workers. If the pay is the same and schooling is virtually free, engineers are produced instead of oilfield roughnecks. A Texas oilman in our group observed that his roughnecks earn more than engineering professors.

Nevertheless, the Soviet Union produces more oil than any other nation, and with all the problems of this sector, we were not left with the impression that they would have trouble meeting their future production goals. For all the inefficiencies, their natural resource base is so enormous that production can continue to expand, but not so much that the Soviets could become a major factor in the world oil markets. If they were to become as efficient in their exploratory and production efforts as Americans, our touring group seemed to think, they could "drown the world in oil and gas/' which is how one of my colleagues put it. Production equipment we saw was considered obsolete decades ago. There were no signs of pollution or safety controls. A number of the Americans suspected they could make fortunes by taking over abandoned oilfields and paying the government a 50 percent royalty on oil that could be brought out with modern techniques. At the same time, the Russians have drilled the world's deepest well at 33,000 feet on Siberia's Kola Peninsula, and they say they plan one of 45,000 feet in Baku. It would undoubtedly be far more efficient to use those resources to recover more oil from shallower wells, or even to increase agricultural production so oil would not have to be produced and exported to pay for grain. But ironically, it is the nature of Soviet socialism that capital is heavily subsidized, and therefore wasted.

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There's a glut of engineers, we heard everywhere. There's probably a surplus of economists, too. A 30-year-old woman who studied at the Moscow Economics Institute is now assigned the job of renting bowling shoes at a Moscow bowling alley in a hotel built for the 1980 Olympics. We sat on a park bench and I talked of the economic reforms underway in Eastern Europe, in China, and suggested that economic reforms would soon be forced on the Soviet Union and things would greatly improve. She looked her most forlorn look: "No, it will never happen. It's in our nature to live this way." She's lived all her life with her parents and younger sister in a one-bedroom flat. She said she doesn't think of the future and doesn't think she has any influence over it. The conversation wasn't an unusual one, but fairly typical of those we engaged in with younger citizens who seem interested in talking, if only to practice English. As cheerful as they might be in conversation, they were uniformly fatalistic in the view that things would not improve for them. Nobody we met, including those most ardent in defense of their system, could see the day when they'd be able to travel abroad, to the U.S. The mere suggestion would elicit a grim smirk. "Where do you vacation?" I asked the woman. 'The Black Sea, although I do not like the Black Sea." "Why do you go then?" "Because that is where they send me." "Do you have to go?" "No, I can stay home."

The exchange startled me. I'd always more or less given the Soviet system credit for providing low-cost vacation spas for the workers, but even here there is a stifling regimentation. A resort within the national penitentiary; you go or stay in your cell.

The most disturbing revelation of this kind came on the weekend of August 27-28, when we saw all over Moscow parents greeting the buses that brought their children home from summer camp. Again, my preconception was that this practice of providing camps for kids was worth bonus points for the Kremlin. In reality, it's another accommodation to the alleged manpower shortage.

For the nominal cost of 16 roubles a month, city children spend the three months of summer at the camps — from the time they are four years old. Parents are advised not to visit the children during the three months because it upsets the children, who have difficulty adjusting to separation in the first place. But there are places set up where parents can watch their children play without being seen.

We're told this by a Russian grandmother, who described the practice in glowing terms, one of the benefits of socialism. But she then went on to say she had not sent her children to summer camps and advised her daughter not to send her grandchildren. They're away so long that when they come back the parents and children don't know each other, and the relationship is often not the same anymore. The camps teach the children different ways of behaving, different rules, and she thought it preferable that the parents do this themselves.

Is the purpose of all this indoctrination? Perhaps, but another practical result is that everyone keeps working, something the central planners very much want. Mothers don't have to stop working during the summer to watch the kids. And with most people sending the children, few are left to play with those who don't go. The pressures to send the children to camp are sufficient to keep the cities depleted of them. The thought of having your children taken away by bus in early June and returned at the end of August was among the most depressing I encountered. It was soon after that the metaphor occurred me, the national penitentiary. After only nine days in the country, I was thoroughly depressed and eager to break out. Our group left Moscow late in the afternoon of August 30 on a Chinese airline bound for Beijing. The instant the wheels of the big Russian-made jet left the ground, everyone on board broke into spontaneous applause.

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On the main street of Shanghai, the most populus city in the word at 12 million, there is a theatre built for the exclusive use of world renowned acrobatic performers. As you file into the theatre, which holds about 1,200 people, an usher hands out brochures and programs, which begin by telling us: "Founded in 1951, the Shanghai Acrobatic Troupe (formerly named the Shanghai People's Acrobatic Troupe) is one of the famous big acrobatic troupes in China."

"What's this?" I asked Mr. Soong, our government tour guide. "What's this 'formerly named Shanghai People's Acrobatic Troupe'?" He caught the look in my eye and grinned, and I continued: "Mr. Soong, I expect to come back here in two or three years, and when I do, I expect to be greeted at the airport with a banner that says, 'Welcome to the Republic of China (formerly the People's Republic of China)'." Mr. Soong laughed heartily at my little political joke. But the next day, having thought this over, he approached me and said he did not think they would ever change the name of the People's Republic of China. I said perhaps they would. "Only," he said, "for purposes of shortening." Nothing political.

In fact, a visit to China in September 1983 is an exhilarating experience because the environment crackles with the dynamics of change, change that is every moment taking China further and further in the direction of shortening its name. Already there is a sense in which the name has been changed, de facto, to simply China. After eight days in Beijing and Shanghai I can't say I once felt that I was in a "Communist" country. The experiments with individual enterprise and capitalism is so thoroughly underway, with such great success, that Mao Tse-tung and his experiment with manic egalitarianism, the "Cultural Revolution," is rapidly becoming a national memory.

•       In the Soviet Union, everywhere you turn there are gigantic posters and billboards of Lenin, Marx and Engels, with socialist slogans decorating the tops of the public buildings. In China, we saw portraits of Marx, Engels and Stalin only in the Beijing museum. In Beijing, there is only one outdoor portrait of Mao that we saw. It faces Tian An Men Square across Changan Boulevard, facing the Chairman Mao Memorial Hall. The portrait is so small that from the far end of the square it isn't possible to tell whose portrait it is. A quarter mile down Changan Boulevard, near the Peking Hotel there is a SONY billboard half again as big as the Mao portrait. There are no socialist slogans in sight on the buildings; billboards advertising toothpaste and wristwatches have sprung up.

•       The first time we hear the name "Mao" is when one of our government guides asks us, from the front of the bus as we head to the Great Wall, if we've ever heard of Chairman Mao. A young man (60 percent of Chinese are under 30), he volunteers that Mao "made mistakes in his old age." At the moment, he is venerated at about the level of Lincoln in the U.S., wart and all, his name brought up only in historical context. For China, the current epoch began in 1978 when Deng Xiaoping began the new economic incentive experiments and loosened up on political freedoms.

•       The pace of change is so great that American tour guides who come through every three or four months say they can see and feel changes even in those brief periods. The most recent book about China written by an American, China, Alive in the Bitter Sea, is already inadequate in giving a sense of the country today. Fox Butterfield of the New York Times covers the several years he was Peking bureau chief, to 1981, but in two years China has galloped far ahead. The women of China, for example, have gotten rid of their Mao tunics and baggy pants and are, in a relative sense, fashion conscious.

•       In a relative sense, too, there is an economic boom underway in China. In many ways the standard of living is still below that of the Soviet Union, particularly in housing, but at current construction rates that gap could be closed in several years. And the markets for produce and clothing and consumer durables already put the stores and shops of Moscow to shame. Soviet shoppers would have a field day buying clothing on Nanking Road in Shanghai, the quantity and quality far beyond what we saw in Moscow.

•       Through a coincidence, graduate economic students at the University of Beijing learned a supply-sider was visiting the city and sent word inviting me to speak to them informally. They were quick to assure me they were being taught all varieties of economic theory (one was doing her thesis on economic growth in England and Germany in the 19th century), and it became clear they are beyond mere disenchantment with Marxism-Leninism. The failure of the Cultural Revolution was so profound, so intensely imprinted on this young population, that there seemed to be no fears that there could be revival, even should Deng Xiao-ping pass away. The economic students are fascinated with Western, particularly American, ideas and are more familiar with U.S. economic policy than I could have imagined, picked up via the Voice of America. The biggest laugh of the afternoon came when I named Marty Feldstein, David Stockman, Beryl Sprinkel and Alan Greenspan as opponents of economic growth in the U.S., names they seemed familiar with, and I called them the Gang of Four.

•      The government encourages English as a second language and the language is taught on television. A letter to the editor in the China Daily, a government-published English-language daily with an upbeat, free-enterprise flavor, complains that some managers are not taking English lessons seriously, which could lead to commercial losses. American-style English is preferred, apparently. One young man in Shanghai boasted to me that he'd learned his English from a teacher who has been raised in Wisconsin. A student in Beijing apologized for what she described as her British accent.

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The driving force behind the economic boom is the surge in agricultural production, the first of the "Four Modernizations" (followed by industry, science and national defense). In five years, per capita income among the 800 million Chinese peasants has doubled, to 260 yuan ($130), and these numbers surely understate the growth in the level of wealth in the countryside. Communes are no longer really communes, now that the "Responsibility System" is in place, whereby families or groups of families can choose to segment themselves within the commune and take responsibility for production on a parcel of the state-owned land. The system involves "Rights, Duties and Benefits," the upshot of which is that the segment gives up a quota that is paid to the state as tax, and surplus is divided among the segment, which can discriminate in determining benefits for individual workers. The system has more the feel of a farm co-operative, with co-op surpluses taxed at a flat 25 percent, and elected communal boards deciding what portion of the surplus should go into capital investment. In addition, workers can supplement income on their private plots.

The net effect of this kind of decentralization, which reestablishes effort-reward system within family or clan, is that some farmers are getting "rich", which is how they are described to us by people in the cities. Those who organize themselves most efficiently, choose the right crops at the right time, or successfully invest their savings to raise livestock, can cash in and draw others into a broader responsibility system. The most successful are building bigger brick homes, most countryside homes being privately owned in China. Private vehicles are not permitted inside the major cities, but we hear the government is encouraging farmers to use their savings to acquire trucks and cars that expand productivity. Black and white television sets are now commonplace, with color TV and refrigerators the new wealth symbols. (In one commune of 18,000 people we visited, 12 of the "rich" families had recently acquired refrigerators.)

As productivity increases in the countryside, the government seems also to be encouraging people to leave the fields not for the major cities, but for expanding local towns and villages with light industry and commerce. One of the most important "capitalist" reforms initiated in China since 1978 permits individuals to begin their own enterprise and hire as many as 11 employes. The Chinese sent teams to Eastern Europe to study similar reforms that have been underway for a decade (Hungarians can now hire up to 50 people), and decided they were suitable for their current socialist framework. The China Daily reports that 70,000 such businesses were registered in Shanghai alone last year and complains of tax evasion among those who are starting private enterprises and not registering with the government.

We're amazed, too, by the brisk activity of the workers in the state-owned businesses. Shop clerks are eager to serve, and at some tourist gift shops, the managers are at the door handing out Cokes free of charge, to keep customers looking at the goods instead of thinking of a cold drink. It works. Inquiring, I discover a variety of the Responsibility System applies in the state markets. Employees are awarded bonuses out of the stores' profits, and when business is good, the bonus can amount to four to five times the monthly wage. Nevertheless, we hear that the tensions building up in China turn on the developing awareness that country folk are getting richer faster than the urban proletariat. At a Shanghai commune (which has now become more a light industrial co-op than a farm), the young superintendent tells us that the young girls of his commune in the last few years have stopped going to the cities in search of superior mates.

This "tension" is probably a healthy sign, pointing toward eventual industrial reforms of a capitalist nature. The economic-growth forces now in control seem anxious to break the "iron rice bowl" mentality that remains a hangover from the pre-1978 days, the notion that a worker simply can't be fired or disciplined by having his wages reduced. A form of the Responsibility System was tried for a few years in the heavy industries, with plant managers given greater local autonomy over personnel and pricing and given discretion over bonus allocation. The experiment simply did not work and was suspended in 1981. A steel mill or automobile plant is too vast and complex an organization to respond to the kind of incentive systems that can make a small farm or shop click by linking effort and reward among individuals. To avoid grief, plant managers would simply pay out equal bonuses among hundreds or thousands of workers, who wouldn't then work individually or in small units to find more efficient ways to produce. And managers would find themselves subsidizing capital to expand output, adding underutilized machines that would simply add to the drain on the national treasury. A new incentive system was begun, I heard, on June 1, but the nature of the reform could not be described to me, only that it was modest in scope and would take considerable time to prove itself. At least the government is determined to experiment in this area, which must eventually lead it to try greater market disciplines.

The government is eager to expand its oil development, currently at 2 million barrels per day onshore, with offshore fields on the verge of production. In the week we were there, China signed 20 joint-venture agreements with foreign oil companies, expecting about 100 offshore exploratory wells by 1985. First Boston Corp.'s Tom Petrie, one of the financial community's best oil analysts, was along on our tour and was very impressed with China's offshore potential, expecting it wouldn't be long before American oil-service companies would be flocking to the region. They seem to be finding oil and gas everywhere they've been drilling in the six offshore basins.

Onshore, the potential is enormous, but there's an infrastructure problem. Modern drilling equipment is so heavy that it can't be moved into China's interior over the primitive roads and bridges. And if it could be brought in piecemeal, by helicopter perhaps, there's no way of transporting the oil and gas out to the markets. Hence, the emphasis on offshore development at the moment. Fewer than 100,000 wells have been drilled in China, compared to about 2.7 million in the United States. The 100 offshore exploratory wells planned, says Petrie, is a big number, reflecting China's confidence in tests to date.

All of this suggests that Deng Xiaoping's goal of a $1 trillion CNP by the year 2000, from the current $400 billion, is not unrealistic. The goal almost seems too modest, considering the demographic likelihood that there will be 1.25 billion people around in China by 2000, even if the current extremely low birth rate holds up. In the 1950s and '60s, Mao exhorted the people to have babies to build power and production; now, the government has a one-child policy, and couples that have a second child lose state benefits. The sub-zero growth rate aims at a population of 700 million by the year 2025, down from the current 1 billion.

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"I hope Deng Xiao-ping lives for another 15 years, even though he is a dictator." This one-sentence observation from a 21-year-old Shanghai history student sums up the dilemma facing the whole country. The 79-year-old Deng is a hero whose economic reforms have brought relative prosperity and the promise of even better times to a people that had recently been locked in their own national penitentiary. But he's still a dictator who has not really followed up with any attempts to liberalize political institutions. There was Democracy Wall in 1979, which took a fling at untrammeled free expression of ideas. But Deng shut it down a year later, and not only have there been no further experiments with political freedom, but there have also been persistent reports of heavy-handed repressions. Reports of forced abortions and even infanticides in connection with the birth-control regimen haven't been traced directly to the central government. But recent reports of dragnets that have rounded up thousands of suspected criminals, resulting in drumhead trials and summary executions of at least hundreds, have not been denied. One suspects that the Old Guard communist cadres and functionaries still around have insinuated that the capitalist-road economic forms spawned heightened criminal activity in the cities, and the government reacted as it did.

Still, there really isn't the kind of repressive atmosphere one smells in the Soviet Union. While there are no posters on Democracy Wall, complaints about the government are voiced casually and nobody seems to be looking over the shoulder. Deng is said to be surrounded by liberal advisers, aides who are political as well as economic liberals —'liberal" being used here in the 19th century manner. Thus, the wish that he live another 15 years even through he is a dictator. The people have a Napoleon problem in Deng, in that the forces of history have thrown up the right man at the right time, but what comes after? Without democratic institutions, the chance that Deng will be succeeded after a power struggle by another liberal as wise as he, is as small as the chance that Napoleon II would have filled the bill. And unless there are political channels that permit the masses of people to determine policy through their leaders, there's only so far the economic reforms can go before a new stagnation sets in. The old Maoist reactionaries are waiting around for just such a moment to say we told you so, to reassert their views through a power elite. Which is why, until Deng is prepared to gamble on democracy again, the young people we met have every right to be skeptical of their futures, as delighted as everyone we met seemed to be with the present. Happiness is always a relative thing. China these days has the happiest people anywhere, considering the nightmare they've come through. When Ronald Reagan visits Beijing next spring, maybe he can give them a few political tips on how to make it last.

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China in a boom, Russia in a Depression. The United States being pulled toward a foreign-policy crisis by the juxtaposition of these historic forces. The Soviets are well aware the United States is in a bull market, an economic recovery likely to give Ronald Reagan four more years. They're aware that Western Europe and Japan are being pulled along in this general advance, and the democratic leaders of these nations will be around for quite awhile, shoulder-to-shoulder with President Reagan. They know Eastern Europe, too, is making headway, especially those of the satellite states that are furthest along the capitalist road in economic reforms. They're aware that Hungary is even engaged in competitive elections almost to the top of its Communist Party, the kind of political reform that when merely implied brought Soviet tanks into Czechoslovakia. The Soviets are aware of the reforms and the boom in China, although the masses of Soviets are not yet quite informed about this progress.

Andropov, we keep hearing, would like to introduce the kind of reforms that would break the Soviet stagnation. But it now appears that is going to be a very slow process, at best. Where Deng Xiaoping succeeded in winning the support of the Chinese defense establishment for his Four Modernizations, which put the military in fourth place, Yuri Andropov seems to have lost out to a solid coalition of Old Guard egalitarian ideologues and the Red Army, the former supporting the latter's insatiable demands for weaponry, the latter supporting the former's resistance to meaningful reforms.

Surrounded by signs of economic growth, the coalition surely feels more paranoid than ever about the external threat. Thirty-six hours out of Moscow when I heard about Flight 007, it seemed entirely logical that the Soviets would have acted as they did, not as a nation but as a national penitentiary. Nor did it surprise me when the Soviet military leaders came forward to rationalize an act that is uncivilized, but not quite unmilitarized. What did surprise me is when Andropov himself came forward to speak on behalf of the reactionary coalition I'd thought he could now more easily oppose. The world is suddenly a more dangerous place, and for the time being, even sound economics won't help much. East and West have to come up with some bright ideas on how to get the Soviets out of their corner. Until we do, this growing tension will dominate the political world.

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