President Gorbachev
May I introduce to you our honourable guest, the Prime Minister of Great Britain, Mrs. Margaret Thatcher.
May I begin our Press Conference by saying a few introductory words.
What I wish to say is that I view this meeting with Mrs. Thatcher in the context of a very vigorous political dialogue that has marked the last few weeks or perhaps even months, the inter-national relationship and I believe that this is something that can be easily understood by all, because when you have leaders of two countries that have longstanding traditions of cooperation that they share and if we also recall that over the past few years the dialogue between the leaders of our two countries has become exceptionally vigorous and meaningful and also effective, then perhaps I could also say that what I may emphasise is that this dialogue has become an important factor of world politics and in international affairs. [end p1]
Today, we spent several hours discussing with Mrs. Thatcher some of the most pressing and crucial contemporary problems; above all, we shared our assessments of the just-completed Summit meeting in Washington. Mrs. Thatcher and I lay much stock by the outcome of that Summit in the United States and what we wish to accomplish is that the results and agreements reached in Washington be implemented and that nothing be lost on the way, but also we wish that a high level of cooperation and partnership be continued in a way that may serve our bilateral interests.
In light of the results of yesterday's meeting of the Warsaw Treaty Political Consultative Committee and on the eve of the NATO Council session in London, if I am correct, we also discussed very extensively the place the two alliances occupy in the European developments, especially the German question and the external aspects of the German question.
We believe that there is a chance for the formation of a new type of relationship between the two alliances as they go through a transformation process while overcoming military confrontation or at least easing military confrontation in Europe. As I can guess from what Mrs. Thatcher had to tell me, there is a possibility of interaction between these two military-political alliances in the development of new European security structures.
Of course, we paid much attention to the German problem. I presented in detail our arguments and our concerns and Mrs. Thatcher, for her part, reaffirmed that she understood the need for taking as much as possible our concerns into account. [end p2]
Something that I have said on many occasions in the United States and this time too, I gave a very detailed account of several Soviet ideas.
My central idea is that we should not confine ourselves to just one option that would necessarily turn out to be one-sided. What we need is an intensive search and comparison of options and positions that would produce a best possible option and what is most important, would contribute to strengthening positive trends in Europe and in the world and also that it does not turn out to be something standing in the way of those developments.
The two of us reaffirmed our position and our view on support for the wish of the Germans to live in a single state but then, there are several other aspects that have to be taken into account. We have in place the Four-Plus-Two mechanism that will have to play its own role based on the outcome of World War II and not on the division of Germany—that occurred at a later period of time.
Of course, in the context of the CSCE process, we also discussed participation by all European states.
In the course of our discussions, Mrs. Thatcher showed interest in the current situation in the Soviet Union. I praise her invariable interest in our perestroika and her position on that issue and I see that not only as an indication of human solidarity with our country and our people, but also profound understanding of the role played by the Soviet Union in contemporary world affairs and also as an indication of the significance of developments taking place in this country for the world, Europe and for civilisation. [end p3]
Prime Minister
First, Mikhail GorbachevMr. President, may I thank you very warmly for taking so much time to see me so soon after your return from the highly successful Washington Summit. It was a very exacting time for you and a very successful occasion, which I think moved things on in the world at large to a new and greater understanding and a determination by dialogue and repeated dialogue to understand one another's views, to crystallise the issues and to find a way forward and to chart the way ahead for the wider world.
This morning, we had very interesting and deep, constructive, friendly discussions—another chapter in the series of discussions we have had—trying once again to define the issues and to consider, as the President puts it, what are the options in the way ahead.
I have also seen Mr. Ryzkhov for an hour, talking about home things in the Soviet Union and I also had a very interesting hour with Marshal Yazov, but of course, the main talks were with the President and, as you know, we support very strongly indeed the changes, the progress which is taking place and the reforms which are occurring now, in the Soviet Union. They are the most exciting, the biggest changes, the most historic changes that have taken place in Europe for a very long time and when they succeed, they will have taken the course of freedom greatly forward and be some of the most remarkable changes of this century. They deserve our full support, not only for the people of the Soviet Union but for the people of the wider world who believe in freedom supported by a free-market economy. [end p4]
The President indicated some of the particular issues that we have discussed.
Of course, we discussed the consequences of the unification of Germany. As you know, our views are that a unified Germany should stay in NATO. It has the right to choose its alliance, but we understand that the Soviet Union and the Warsaw Pact will require some reassurance to enable them to be certain of their own security and as he indicated, we must find ways ahead to provide that assurance and I indicated that also to the NATO countries to whom I spoke yesterday.
I would also like to say that I had felt recently that in British universities we were not giving quite enough attention to Soviet matters and therefore we are setting up ten new lectureships throughout British universities so that we may add to the close studies we make and I hope that it will lead to many exchanges between Soviet universities and British universities.
We also signed a Cooperation Agreement, which will take into account such things as training in management, help with small businesses, problems with intellectual property and all of the detailed things which could together make some difference in enabling the Soviet Union and her people to know how to bring about the changes which they so desire. It is one thing to set your objectives quite clearly, that you want to move to a market economy, with all of the prosperity and freedom that will bring knowing full well that it has to be within certain rules but not too detailed—it is one thing to say it and to say it quite quickly in two or [end p5] three sentences; it is much more difficult to clothe that with reality, particularly with people who have been used to living another way for a very long time but know that it has produced neither the prosperity they want nor sufficient freedom. They have now chosen their way and it is up to do every single thing that we can to help them to achieve it.
It is already proving to be a new, more peaceful, more trustful, more confident world. We both know we have to keep our defences strong as a way to prevent and deter war, but that is the way in which we shall be able to ensure the peace and go on for a higher standard of living for our peoples and to take a full part in the wider world.
May I thank the President for a very wonderful day, for his time, and assure him of our continued support in these great and historic reforms in the Soviet Union. [end p6]
Mr. Lobochenko (Soviet TV)
Prime Minister, we are … . of a stable development of economic relations between our two countries, especially during the last six years, during the period of perestroika and economic reforms in our country led by our President Gorbachev and in this case what can you say or can propose … new ways of development of cooperation between our two countries in the economic sphere?
Prime Minister
I do not think there are any new ways. I think there is perseverance with old ways.
First, an obvious point: a market economy works and it brings greater prosperity than any alternative. That prosperity is to be seen in the United States, is to be seen in most of the countries of Western Europe, so that it works is not in doubt.
What is the problem is how to change the attitudes of a people who have been used to a very different kind of economy to one that will produce the same results by the same method and so, yes, we help to train people in the ways of the market economy, train them in the ways of management, train in the ways of costing, in the ways of accountancy, train in the ways not only of production but of storage and distribution—because it is one thing to make your goods, it is another to get them to markets in the condition in which you produce them—and try also to show them how we translate the results of research and I have occasion to know there are some [end p7] marvellous research institutes in the Soviet Union—how to translate the results of research through into industrial processes and new products so that they come to the people.
It is not a question of a magic solution—there aren't any. It is a question of steadily working at it on a friendly basis with many of the countries, like us, doing the same things and showing people that it can work and that they will be able to do it, and I hope that we will continue to do just those very things.
President Gorbachev
May I just add a few words by revealing the contents of a very exciting talk (amusing anecdote) that I shared today with Mrs. Thatcher. I mean the talk that I had at Stamford with a group of professors. Professor Friedman, an outstanding economist, shared one very exciting view with me. He said that when the Americans, in the wake of the War, decided to help the Japanese in building a modern economy and in developing market economy methods, a group of American economists went to Japan and their first impression—he said that publicly, therefore the Japanese reporters who are present here in this room must take my words for granted—was that the Japanese people were not prepared to work, to operate, under market conditions because they lacked energy, initiative, they were not vigorous enough, they were sort of wrong human material, if I may say so, to be employed in the development of new economic methods. But then he told me that now you know how the Japanese are working.
What I am saying is that I want to emphasise just one point: no need to be scared; there may be some psychological impediments [end p8] that you need to overcome before you change to new methods and new forms. There are certain apprehensions and misgivings and this is something that we can feel now in this country when we are changing to a market economy.
There were many people who were saying: “While we stand for a market economy, we want to have a painless transition to that market economy!” —something that does not appears to be realistic.
I would say that the point that Mr. Friedmann made was that a new environment, new conditions, make people act in a new way. Therefore, we need to forge ahead fearless of any initial difficulties and incidentally, something that I also mentioned in my conversation with Mrs. Thatcher—and I also mentioned the same thing when I appeared in this room jointly with President Mitterrand—I recently had a meeting in the Kremlin with Soviet lease-holders and we knew that they represent a new generation and what struck me was the novetly of their approach, their initiatives, and we ended our talk by deciding that they would come up with some suggestions that they would convey to the President as to what should be done to make the law on lease-holding effective.
This is what I thought necessary to mention in connection with your question.
Michael Brunson (ITN)
Mr. President, I wonder if I could ask you: as the days go by and after the Summit and after, now, your meeting with Mrs. Thatcher, you begin to feel less worried than you were about German unity and the possibility that the Germans may wish to join NATO [end p9] and I wonder if some of the ideas that Mrs. Thatcher put forward today like, for example, the non-stationing of NATO troops in the East for a while, have helped to reassure you further?
President Gorbachev
Without going into details, I would respond to that question in the following way:
The discussions that we had in Washington—and we also dwelt on this subject at Camp David—all these discussions proved useful because they provided some food for thought to the two sides and there were suggestions that may appear in the future. They are now in the process of gestation.
This is going to be a very important period that we have ahead of us. I still maintain the same approach to that problem. I am not sure what action may gain the upper hand eventually. As I said today, it may be the option suggested by Great Britain's Prime Minister or another option suggested by someone else but what matters is that we have an option that takes into account reality and a balance of interests and that instead of breeding suspicion it sort of multiplies everything positive that we have accumulated now in the course of the recent developments.
I would say that as a result of our discussion, we have sort of seen the emergence of some new ideas that perhaps would be made the subject of consultations between us and the Americans and the British—perhaps at the level of Foreign Ministries—so that from that high-flown philosophical discussion we get down closer to earth and come up with some specific elements that would be in line of an [end p10] option that we all need. I am sure that we can come up with such an option.
We had that discussion yesterday with the leaders of the Warsaw Treaty countries. Today, you may have read a brief declaration that appeared in the Soviet press and you may have noticed that this is a totally new document indicative of the fact that eastern countries are responsive to what is being done in the West and we approach the West not as adversaries but as partners in building a new type of relationship.
There is also another fact mentioned here. That is, it contains an invitation to NATO countries, when they get together in July, so that they sort of close the gap that has developed compared to what the Warsaw Treaty has already accomplished, so that we can compare the military doctrines and so that we can discuss new structures, a new mix of armed forces and so that we can sort of transform the structures of the two alliances in accordance with realities.
Another factor that is mentioned in that declaration is a provision to the effect that within the next few months, we would be prepared to draft a document at the next meeting of the Political Consultative Committee; we can lock in an agreement, a text, that would imply transformation of the Warsaw Treaty away from military into a political organisation. Provided NATO follows the same course, that may usher in new possibilities, allowing us to take a fresh look at the two alliances, not from the point of confrontation, although we have reciprocal visits by Defence Ministers and perhaps they have already made as many reciprocal [end p11] visits as our Foreign Ministers. But then, there would be also a possibility to take a fresh look at new forms of interaction between them for the purpose of building a new type of security because initially, those alliances were built for the purpose of security during the Cold War. That security was attained through one type of method but while we are building new security structures, they should try and attain that security through cooperation between governments and through the use of different methods because those alliances should be mindful of the undergoing change.
This is not to suggest that we discussed with Mrs. Thatcher some specific ideas. I am just giving you an outline of what we discussed and also, if they interact in this way, if they build more confidence in that area and then if they start moving toward accommodation, then the question may arise whether or not we find ourselves in a situation where either alliance would be open to accepting in their midst countries from another alliance because if we lay our stakes on any European security, then we need greater cooperation among all European countries, etc.
If we follow that line of reasoning, building on the elements that have already emerged in all those discussions, then perhaps we could finally arrive at some phase in resolving external aspects of German unification which could be formalised, unless we wish to act like an elephant in a china shop just making some brisk movements and destroying everything around. [end p12]
Question (Soviet Woman Magazine)
Mrs. Prime Minister, the world knows that you are a firm and vigorous politician. To what extent are those traits in line with your human feminine qualities?
Prime Minister
Perfectly! Next question!
President Gorbachev
That is a good question and a good answer!
Question
Mrs. Thatcher, could you respond to what President Gorbachev has just said about the possible changes in NATO's approach and also whether you might be prepared to build on the security by making gestures such as not going ahead with the modernisation of nuclear weapons?
Prime Minister
President Gorbachev has already given you an account of how he sees the options for increasing the confidence and security of the Warsaw Pact and in particular the Soviet Union in face of the unification of Germany.
What I said yesterday at the NATO meeting and repeat today is that we must work very hard at these particular options and ways ahead so we get that increasing confidence so that it matches, I think, the new situation and we shall both look at these matters to see precisely what we can do. [end p13]
You then asked whether we should refrain from modernising nuclear weapons. I think that is not so. I think that both of us, whether the Soviet Union or the Warsaw Pact or NATO, both of us need always a secure defence. Wars are avoided by countries which have a secure defence. A secure defence is both a deterrent and an assurance that if anything did happen, you would have the means to counter it.
You only ever have a secure defence provided you keep your training and your weapons and your technology up-to-date, so there is no point in singling out one kind of weapon and saying: “If it is part of your armoury, you need not modernise it!” A secure defence is a good … people, well-trained, modernised weapons kept up-to-date as necessary and so I think whatever your mix of weapons, it is necessary to keep them up-to-date, and I expect others to think the same.
Question (United Arab Emirates)
I have two questions—one to Mrs. Thatcher and the second to President Gorbachev.
The first question: Do you agree that the anti-Iraq campaign of which Great Britain was a part was launched on the initiative of Zionism as a cover for Jewish emigration?
My second question is posed to Mr. Gorbachev:
During the latest Summit meeting, you said that Israel should heed the voice of the Soviet Union and of America, otherwise the Soviet Union would have to reconsider the problem of the emigration of Soviet Jews. Did you have in mind cutting emigration of what [end p14] was your reaction to the response of the American side?
Prime Minister
As quickly as I can:
First, Great Britain is not anti-Iraq. We have full diplomatic relations with Iraq, a number of people in Iraq. We are not anti-Iraq.
Secondly, with regard to Jewish emigration from the Soviet Union, we worked very hard to secure that right in greater numbers. President Gorbachev has given it and most people who wish to leave the Soviet Union are now free to do so.
I have said at the meeting of the Board of Jewish Deputies and in other speeches that I think it is wrong that people who leave the Soviet Union should be placed in the Occupied Territories, territories which we really regard as belonging to someone else and not to the state of Israel, and I said that I think that it is letting those of us who have campaigned vigorously down to treat the emigrants from the Soviet Union in that way.
I know full well that some of the Arab countries have almost blamed President Gorbachev and indeed, that has been said to me by some of them and I have responded vigorously: “It is President Gorbachev who is giving the liberties which you and I have taken for granted for years! Do not blame him, praise him for what he has done!” But at the same time we should see that those people do not reside in the Occupied Territories which basically do not belong by law to the state of Israel—and we shall continue to make that view clear. [end p15]
President Gorbachev
I wish to respond to the second question.
I am not going to repeat statements that I made in the past—they are a matter of common knowledge—but I wish to reiterate that this is a very serious matter and it is our hope that Israel will heed what we had to say in Washington.
I would also add that I think Washington also can level with the seriousness of the situation, something that I just heard from Mrs. Thatcher's reaffirmation of the correctness of my feeling, so I really hope that Israel will heed what I said there. Under our legislation and under our law, that process will continue in a normal fashion as it has been continuing up till now and there will not be any need for us to make any adjustments or amendments.
Should the situation develop in a way when we would have to respond, then—and this is something that I must say—we perhaps would have to resort to the use of our sovereign rights and competence to bring some influence on that unfavourable change in the situation.
David Smith
President Gorbachev, two questions:
First of all, what is your reaction to the vote in the Russian Parliament this afternoon which effectively suspends Soviet law and seems to suggest that Russia will soon be a sovereign republic?
Two, are you planning to meet Mr. Yeltsin and do you believe that you and Mr. Yeltsin can work together? [end p16]
President Gorbachev
I was under the impression that I already had similar questions in the past and I gave a response to that question but as the press very much likes to bandy around some hot items, I have to try and respond to it once again.
First, the Congress of the Peoples Deputies of the Russian Federation has not yet passed any law that may contradict the Soviet constitution and in pursuing this point, I will say that I am 100 per cent confident that neither the Congress of the Russian Federation of People's Deputies nor the Russian Supreme Soviet will try and pass any legislation that would stand in the way of reforming in an undesirable way the Russian Federation.
The citizens of the Russian Federation through centuries passed from one generation to another this feeling and need for good neighbourliness and for cooperation among all the nationalities living in this vast country.
This is how we were educated, how our parents and grandparents and great-grandparents were educated. This is quite natural.
Of course, the Russian problems that were neglected in the past, they piled up; they have become painful; in current conditions of democracy, glasnost and openness, they have come to the forefront. They now have become conspicuous not only on the national level but on the political level as well. Sometimes, politicians may be lagging behind and, of course, this is something that you must not allow yourself to do because any lagging behind may produce a situation that would be very hard to cope with. [end p17]
Through this new policy, we have come to the understanding that what we need are some radical changes in the Russian Federation. What we may see in the next few months—and this is just one of the elements in this new phase of radical transformation of our society—this, I am sure, will lead to normalising the situation and, of course—and this is my firm feeling—that just as it was in the past when we went through past appeals, the people of Russia will play a consolidating role. Russians will not tolerate a situation when someone would try and push them toward confrontation with other nationalities, be it on the regional level or national level or the constituent republican level.
As to whether or not I can do business with Comrade Yeltsin, we are now witnessing a process of democracy, a process that has its own difficulties. We have Mr. Yeltsin as Head of the Russian Federation and for just the moment I stepped on the tarmac in Ottawa, the same question was addressed to me and I said that that was a difficult choice because Mr. Yeltsin made some political statements on some major issues related to perestroika policy back at that point and, as I said before, I would use that turn of phase again because I like it and this is something that I can relate to—this is a reflection of what is going on.
If it is not a matter of a political gamble, then of course there is every chance for a normal business relationship but then, Mr. Yeltsin made some also very serious businesslike comments and if they remain in force then I am ready to subscribe to all of them. What matters now is consolidation, cooperation, a business-like relationship and I would really be upset if, during this phase of [end p18] profound transformation of our society, we see a division of perestroika forces, of all sound forces, in society.
What we need now is national unity and a profound sense of the need to address some of the most crucial problems that lie ahead of us in the next months.
Question
(Microphone Appears to have failed)
Prime Minister
Thank you! I have had your question translated—the interpreters could not hear it. It is:
“Does NATO understand the need for compromise in considering the consequences of a unified Germany?” I think that is a fair summing-up of what the question was.
First, Germany is unifying in such a way that East Germany joins West Germany. West Germany is part of NATO and a fundamental part of NATO and the whole of Germany has the right to choose its alliance. West Germany will continue to stay part of NATO—we believe that East Germany wants that. We believe that it is necessary for the Alliance and also to keep the presence of United States forces in Europe.
The presence of United States forces in Europe is, I believe, vital to the security of Europe and really is an assurance both for NATO and also for the Soviet Union that United States forces stay here.
That being so, I understand the need for some reassurance for the Soviet Union and the wider Warsaw Pact countries. We are working on precisely what that reassurance could and should consist [end p19] of, the number of things that would amount to a reassurance and, as Mikhail Gorbachevthe President indicated, his people are working on it—I am sure the United States are—and we are. It will undoubtedly consist of a considerable number of things but it does demonstrate the consciousness and sensitivity of NATO to the need to find this assurance and that of itself demonstrates, I think, the new chapter in relationships between the two alliances.
May I say just one other thing: I believe that both of us—I think indeed all of us—believe that the best way to pursue the relationship between the United States and Canada and Europe and the countries of Eastern Europe and the Soviet Union is through the CSCE process. As far as we are concerned, we pursue our economic relations through the Economic Community, our transatlantic relations through NATO and defence and also possibly through a new political aspect to NATO, and we must have the forum of the wider discussion taking place more regularly at Heads of Government level and at Foreign Secretary level which, I think, should come through the CSCE to which we can give this enhanced role for political discussion and I have suggested, therefore, that that should meet at Foreign Secretary level regularly twice a year. Mr. Shevardnadze has also made some proposals directed towards the same end so that is two points where NATO is sensitive to the needs of reassurance of the Soviet Union for the consequences of German unification and a permanent wider forum for regular discussion so that we may understand one another's viewpoint, crystallise the issues in discussion, then take them away and do something about them. [end p20]
Question
A question for both-Prime Minister and President:
What are the possibilities to create some common bodies or parallel bodies between NATO and the Warsaw Pact?
And especially for you, Mrs. Thatcher: what do you think about the possibility of creating a common European security system which is something more than a wider discussion forum?
Prime Minister
I do not at the moment see those common bodies emerging—they may one day, but I don't see them.
At the moment, I think the new spirit that we have between NATO and the Warsaw Pact, evidenced by the NATO communiques and also the Warsaw Pact communique, are the ones to work through and that we should work through those as we do through the CFE Agreements which also, of course, come within the Helsinki Process.
So I think for the time being we should continue to work through the existing organisations. That would be quickest and have most confidence. Something else in the future may develop, but let us work through what is now happening and the structures we know.
You asked about a common security system.
Again, I do not at the moment see one developing, for the same reasons that I gave in answer to the first question, but do not forget, a great deal of security work is not done by arms control negotiations—it is done by discussion in the wider fora. The way in which you discuss your arms reductions and the wider relationship is discussed through the Helsinki Accords, which we all signed, all [end p21] thirty of us in 1975 and that, I think, is the forum, as I indicated earlier, through which we can develop a closer, more vigorous, more intimate relationship between all of the countries who are signatories to that Accord.
President Gorbachev
I think that these two issues are interrelated in a very logical way, especially in the context of what we see now in Europe and in the world, but I have a somewhat different view of the possibility of building some parallel structures between NATO and the Warsaw Treaty.
What we discussed yesterday in the Warsaw Treaty meeting was the fact that greater emphasis is now being laid on the political aspects. Provided that developments start proceeding along the same lines in NATO, if we get an indication about that from a London NATO Summit meeting, then perhaps this would make it possible for us to envisage not just some agreements on the usefulness of interaction in the interests of all European security, but also we could get some grounds for building some new bodies—all-European bodies.
If, on the basis of what we heard yesterday, we eventually come up with a totally new organisation and if in NATO people do not confine their efforts to just making some artificial attempts at creating a new type of structure, if the serious discussions now underway lead to some effective changes affecting the doctrine and the structure of NATO and also the power and functions of NATO, if there is a change to a political emphasis in the operation of NATO, [end p22] then perhaps we might broach the subject of building some political bodies and structures.
If all that is going to happen, it is then that we could try and foresee some new developments in building at a more rapid pace the new pan-European security structures.
So far, in all our efforts to build some new structures, we relied on the existing two alliances. If the nature of those two alliances is changed, if new forms of cooperation between them emerge, then perhaps we could approach the subject of building a new security structure.
I would say that Mrs. Thatcher is a more cautious person, a more experienced politician. Still, she is not discarding that option. She just wishes to reserve a more careful approach to that problem and this is quite natural because if everything that we discussed was similar, if we were similar, then we would not have any need for talks, discussions and meetings.
Question (In French)
… . in particular three parliaments rejected that option Belorussia, Ukraine, and Russia. Don't you think, Mr. President, that given that situation the Government should resign—something that happens in all democratic countries?
President Gorbachev
This is to suggest that in that respect we are far ahead of you in terms of democracy and this is another reaffirmation of the fact that we are now truly democratic. [end p23]
Now to the subject of that question, the change that we have seen now in the framework of a very radical economic reform that is currently underway, perhaps that is the most radical step that we have made in perestroika. That has been long pending, long overdue, but then, of course, there is another position to the effect that we have to revert to a command and control system.
Most people in our society have long concluded that what we need are some profound changes in our economy. In 1987, at a plenary meeting of the Central Committee, we had that discussion and we emphasised at that time the need for some action in our national economy that may eventually lead us to a market economy. Even at that time, we knew that that was what we needed in order to have an effective economy that would make rational use of natural material and financial resources and create the required incentives for productive labour effort and also for effectively assessing the labour effort of individuals and worker collectives.
A market economy is not something that capitalism invented. As I said to Mrs. Thatcher today, I am a sort of lapsed lawyer—I studied law and I studied Roman law and what caught my attention was the fact that there was a rule in the Roman law that could very well have been applied to market conditions, so when we talk about a market economy we have to bear in mind that this is something that civilisation invented long ago. Of course, every phase in the development of human civilisation affected in its own way the operation of that mechanism.
In this country, we tried direct exchange of products immediately after the Revolution. Then, still with Lenin alive, [end p24] we discarded that method. We introduced labour incentives. Lenin used to say that you cannot rely on enthusiasm in building socialism—you have to rely also on material incentive. You can use enthusiasm in addressing major problems only for a short period of time but to be able to lay a firm foundation for the years to come, you need incentives and you need material interest and a market economy is precisely the mechanism that can provide incentives to productive effort that can be indicative of the performance—bad or good performance—that would regulate the flow of capital, etc.
I am making this aside just to emphasise that this is a very broad problem. Now we have come to realise that we do need a market economy but before we can accomplish that, we tried self-accounting, lease arrangements, improvement in the planning mechanism, describing command administrative methods, improving the operation of various ministries, decentralising, the delegation of authority. We had to go through all those phases before we could develop a clear vision of the operation of a market economy and even now, psychologically, we are not fully prepared to face squarely the requirements of market economy—we still have to develop that understanding.
But the Government, as it promised before, submitted its new plan to the Supreme Soviet for consideration and after discussion and consideration by the Supreme Soviet, a final plan would be submitted to society at large for discussion. Even at this stage, we are quite open; we have live broadcasts from our Supreme Soviet sessions. We know that the British Parliament tried this but then decided this is something that should not be used on a continuous [end p25] basis. We are approaching that point, because we do not want our Deputies to be operating under direct influence from the public and we also know that our Deputies have been improving very much in their skill as Deputies.
What you may now be hearing is that the way the Government phrased its report, it may contain some drawbacks, some wrongly-placed emphasis. For instance, people's immediate reaction was alarm over price-hiking, but before we are able to change to a market economy, we need to go through a transition period and those of us who attend sessions of the Supreme Soviet can see how heated the debate is. This is something that appears to be quite logical because without that we cannot have a full view and picture of market economy. We need anti-monopoly legislation; we need legislation on ownership. Either in the Supreme Soviet or in the Government, we must launch a new banking system, a credit system, commercial credits and banks; we need to open exchanges; we need to have some databanks where we will have all the information coming from consumers and producers, etc.—everything that is a normal part of the function of a market economy mechanism. And I just listed to you half of what we still have to address.
The whole legislation package contains some thirty Acts that will have to be passed before we have a market system in place. For instance, our credit system is not operating in a proper way. Money is worthless. The interest rate is as low as 1.52 to 3 per cent, which is really a very low percentage point which does not provide the necessary incentive—something that a market economy [end p26] is not going to tolerate. A lot will still have to be accomplished. That is my first point.
My second point is that, quite naturally, we will have to include in the agenda the form of the price-setting mechanism because if we take the current system of prices, this is something that no-one can understand what it is all about because there are some prices that remained unchanged since 1952 or since 1962; meat prices, milk prices, for instance, there were some changes in prices, but they were minor ones. Salaries were increased.
If you take state subsidies, for instance, state subsidies rose as high as more than 100 billion roubles—subsidies to agriculture, subsidies for instance that go into the maintenance of the Moscow subway, which is something that we need but it is a loss-making enterprise. Energy resources that any economy needs to be able to operate properly and those who produce energy, they work at a loss, so you have to change wholesale prices, procurement prices and retail prices and what we promised to our people—something that I have said on many occasions and you may recall that—I said that when we come to the point when we have to face squarely all those problems, we would seek counsel from our people. [end p27]
Now when the Supreme Soviet makes all the necessary adjustments and submits the amendments to the government on this change to a market economy, then perhaps we will submit the entire programme for consideration by our people and then perhaps we would find the proper options, the proper forms and methods.
We would wish to get advice from all our people, not just from selected or individual groups of well placed individuals. Perhaps we will have to have some discussion of that at local Soviet level and then perhaps we could get a clear picture of what is the prevailing consensus. And it is based on that consensus that will eventually formulate the position of the government.
Of course there are some elements of emotional approach but we should not be guided by it, rather by a cool and logical perception of things as they stand. This is my view of the situation, we must have a consensus, a national consensus in the country and based on that consensus we have to proceed to those radical changes, without procrastination, but also protecting [end p28] people's interests, we will have to effect that change.
Maybe it is the Western press outlets, the British press, that has been reporting that living standards are going to drop as much as 70 per cent in the Soviet Union if that radical reform is carried through. I am not sure whether that assessment is really correct. Through the sale of precious metals, through several other methods, we intend to off-set some of the effects of the changes that may take place. And that also would include most food staples so that we can compensate that price increase.
But of course we will have to take into account the economic reality and also we have to raise our level up to international standards because otherwise we will not be able to protect our internal market which within a very short period of time would be fleeced by British businessmen and businessmen from other countries. I would say that bringing our level up to international standards, that is the most correct approach, we need world level prices. We also have to address the problem of Rouble convertibility but that would also take time.
Of course our people are alarmed by, I would say two main points: whether or not a price hike may affect the standard of living, especially of lower income people; and then of course introducing a market economy would need great efficiency, cuts in production costs, some structural changes, and that would mean laying off people and we have to know whether those people would be protected in the course of all that change, whether they may be compensated in some way and how the state is going to protect the interests of those people. They would have to be retrained. [end p29]
We cannot have a situation where you have reform in the country or at an individual enterprise and you have people who are left unprotected. We have to see that all those people are protected and by the time people come to realise why we need all that change.
We want to have a market economy, not because it is our selfish interest to have that market economy place. Our main concern is that we have empty shelves, that is why we need the change to a market economy. But before we proceed with that we need to generate incentives and we need to produce a situation where we can have industrial capacities that can fill our empty shelves.
I think that as time passes we can get consensus from the people and that would allow us to enter a new, normal economic phase and provide for the needs of the people. This is a very essential, very important issue and I know that all of you have been taking a part in that discussion.
I get information on what you are writing in your press outlets and sometimes I am really excited by what I hear coming from you, sometimes I wonder where all your sources of information come from. But then that is quite normal because if you want people to continue reading newspapers then you have continuously to invent something because you operate on a cost-efficiency basis too. But please do not forget that we are going through a very serious phase and you need to write about us in a very serious fashion because we want our perestroika to succeed, we want this transition period to succeed and we think that this is something that you need as much as we do. [end p30]
That is the price that will have to be paid because this is where the centre of world politics is now to be found. Those who fail to understand that would fail to understand current developments in the world. It is not that I want to boast about the role of the developments taking place in this country but I am satisfied, after hearing from Mrs Thatcher, to the effect that what is happening now is the most important thing in the world.