The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. Leading the news this Friday, Soviet Pres. Gorbachev threatened an economic blockade of Lithuania, and the Soviet Union admitted to the 1940 massacre of thousands of Polish soldiers. We'll have details in our News Summary in a moment. Judy Woodruff is in Washington tonight. Judy.

MS. WOODRUFF: After the News Summary, we go first to plans for overhauling the Soviet economy. On the eve of talks scheduled in Moscow this weekend, we look at Gorbachev's options with two specialists on the Soviet economy [FOCUS - PERESTROIKA PERILS]. We follow that with a report on a group of Soviet business people visiting the Midwest [FOCUS - GASTRO GLASNOST] to learn how capitalists get food to the table. Then Correspondent Kwame Holman with a progress report [UPDATE - D.C. DRUGS] on the war against drugs in the nation's capital, and finally [FOCUS - GERGEN & SHIELDS] our regular Friday political analysis team of Gergen & Shields.NEWS SUMMARY

MR. MacNeil: Soviet Pres. Gorbachev today threatened an economic blockade of Lithuania if the Baltic Republic does not renounce some of its recent pro-independence laws. He gave Lithuania two days to comply. The threat was made in a letter to the Lithuanian government. Mr. Gorbachev didn't specify which items would be embargoed, but he said if the deadline is not met, Moscow will stop sending Lithuania the types of products that can be sold to other countries for hard currency. Those products include oil, natural gas, and coal. Pres. Bush was asked about Gorbachev's threat after his meeting with British Prime Minister Thatcher in Bermuda. He called the report deeply disturbing but said he didn't yet have all the details, but he repeated his position that the Lithuanian conflict should be resolved by negotiation. He said, "Now is no time for escalation." Lithuanian's President Landsbergis said Gorbachev's letter made things clear as to how they're going to threaten us. He said he thinks "The surrounding world will react on such steps from the Soviet Union and it will create a new political situation which will be bad not only for us for also for the Soviet Union." Judy.

MS. WOODRUFF: After five decades of official deceit, the Soviet Union today admitted it was responsible for the massacre of thousands of Polish soldiers during World War II. The killings took place in the Katyn Forest under orders of Josef Stalin. We have a report by Bill Neely of Independent Television News.

BILL NEELY, ITN: After a three year investigation, documents have been found that trace the last days of men captured in the first days of the war. They were the cream of the Polish army, their capture a coup for the Russians. Four years later, their mass graves were discovered at Katyn. The Poles blamed the Russians, the Russians the Nazis. Today the Soviet authorities told the true story, that in 1940, 15,000 Polish prisoners of war were brought to this spot and murdered, not by the Nazis, but by the Soviet NGVD Secret Police, the forerunners of the KGB. It was, said the announcement, one of Stalin's worst excesses. The discovery of this 50 year lie has brought relief to locals. There were rumors for years that the Nazis didn't do it, he says, but the people who knew the truth were too scared to speak out. "It's good to admit our guilt now," he says. "It was wrong to have lied for so long." The announcement coincides with the visit to Moscow of the Polish president, Gen. Jaruzelski, who says he now hopes relations between the two countries can improve. Moscow has expressed deep regret. Tomorrow he goes to Katyn, where he, himself, fought as a young officer, and he'll lay flowers, knowing that one of the last mysteries and crimes of the second world war has now been solved.

MS. WOODRUFF: Solidarity Leader Lech Walesa said today "It is good that murderers admit their murder, but they must remember that this is only part of the problem." He added, "This crime was even more heinous than the Hitler crimes."

MR. MacNeil: A British company whose shipment of steel piping for Iraq was stopped by Customs officials this week said previous shipments had already gotten through to Iraq. British Customs seized the shipment of eight cylinders earlier this week on the grounds it could be used to make a huge artillery gun barrel. Arms experts said such a gun was capable of firing nuclear or chemical shells into Israel and Iran. The company that made the cylinders said today that it had previously delivered 44 of them with government approval and said it was absurd to think the equipment could be used for a gun. Iraq said it wants the cylinders for fuel pipes. Good Friday was commemorated in the old City of Jerusalem today as it is each year, with thousands of Christians retracing the final steps of Jesus before his crucifixion through the winding Villa De La Rosa. Heavily armed Israeli soldiers lined the route for security which was heavier than normal because of yesterday's confrontation over a group of Jews who occupied a building in the area. There was no violence at today's observance. Pope John Paul II had a Good Friday message for Lebanon today as the country entered its 16th year of civil war. He called for dialogue to end the conflict and asked Lebanon's Catholics to unite among themselves and their pastors. The most recent fighting has been between Catholic factions. In the past 15 years, virtually every Muslim and Christian faction has fought against each other. A hundred fifty thousand people have been killed.

MS. WOODRUFF: Pres. Bush's so-called "drug czar", William Bennett, today reported on the fight against drugs in the nation's capital. One year ago Bennett declared an emergency situation in Washington, D.C., and targeted it for special attention from the federal government. Earlier this month, several federal officials and members of Congress declared the effort a failure. Today Bennett said that that was not the case but he said the situation remained far from acceptable. He spoke at a Washington news conference.

WILLIAM BENNETT, National Drug Policy Director: I think it's fair to say the record is mixed, spotty, incomplete, not nearly as good as anyone would like, but also not so bad as many people might imagine. There is little good news to report to you, however, about the most serious of tabulated crimes. As all of you know, murders in D.C., many of them also drug-related, were up sharply lastyear. I understand there may be indications that specifically drug- related murders in the city have fallen off recently, but suffice it to say, nevertheless, that last year's D.C. murder rate and an apparent continuing trend into this year are a bitter disappointment to all concerned.

MS. WOODRUFF: The Justice Department today announced a change of policy on admitting people with AIDS into this country. The change will allow foreigners to apply for special 10 day visas to attend professional, scientific, or academic conferences in the U.S. The first event to qualify for the new visa procedure will be the sixth international conference on AIDS which takes place in San Francisco in June. AIDS activists had threatened to boycott that conference due to restrictive U.S. immigration policies.

MR. MacNeil: Inflation at the wholesale level dropped slightly last month, the first decline in seven months. The government said that wholesale prices fell .2 percent mainly because of lower energy and food costs. Warmer weather drove down prices which had increased sharply in January due to cold weather.

MS. WOODRUFF: That's it for our News Summary. Just ahead on the Newshour Gorbachev's economic challenge, giving Soviets U.S. business know-how, the D.C. drug war one year later, and Gergen & Shields. FOCUS - PERESTROIKA PERILS

MR. MacNeil: On the day that Mikhail Gorbachev threatened economic sanctions against the Baltic Republic of Lithuania, we focus on the critical economic issues confronting Mr. Gorbachev at home. He and his top advisors are supposed to meet this weekend for a review of strategy and programs. We begin our focus with a background report on the kind of dramatic economic reforms that Mr. Gorbachev may be contemplating for the entire Soviet Union, reforms which are being implemented on a local experimental basis in Moscow. David Smith of Independent Television News has the story.

MR. SMITH: Every morning at Moscow's main railway stations they arrive in the thousands. They are people who live in the cities and towns of old Russia. They traveled three to four hours just to get here. They're searching for food and other basics because they can't get them back home. Muscovites call them the paratroopers, flying in and stripping the shelves bare. Now the government insists relief is on its way. Mr. Gorbachev's advisors say that by July this country will move from the nightmare of the centralized economy to the free market. The price for everyone will be high and Gorbachev's creditworthiness has never been so low. Most people here feel he's already used up eight of his nine lives when it comes to the economy. Still, the President's men feel that the time is now right.

SERGEI PLEKHANOV, US-Canada Institute: I think people underestimate the importance of the elections which took place in the past few weeks, because there has been something like a giant transfer of power from the bureaucracy, not all the power, but a large amount of the power from the bureaucracy to the Soviets, to the local governments and the regional governments, which will now be expected, and Gorbachev as President is likely to encourage and advance that process, which will be expected and encouraged to take responsibility for those reforms, because there are so many things that the local government can do to encourage this transfer of power.

MR. SMITH: Nowhere is that more evident than at Moscow City Hall. Until this week, it was the Communist Party that had always ruled here and the capital's leaders were infamous for dragging their feet on Mr. Gorbachev's reforms. Now the corridors of power in Moscow have fallen to the radicals, men and women who campaigned on the slogans of getting the government off the people's backs, with the creating of a free market within a matter of months. When the new Council meets, the radicals will have a clear majority. The new mayor of Moscow, always a power in the land, will be one of theirs, and they'll have the freedom to push through reforms at the grass roots. The leader of the radicals and the man picked to be Moscow's next mayor is Sergei Stankevich, young, dynamic and ambitious.

SERGEI STANKEVICH, Moscow City Soviet: We cannot build capitalism around separate state. We cannot rebuild market economy, but we can be a kind of locomotive of change for the rest of the country. We can be a mogul and they are ready to play this role.

MR. SMITH: The radicals talk of building blocks to free market capitalism. First comes the privatization of city services, for so long a classic case of overmanning and inefficiency. Now street cleaning and garbage collection will be put out to tender, with city workers given financial help to set themselves up in business. When Moscow plans to start selling some of its vast housing stock, Gorbachev's new laws on private property make it feasible, the hope is that bricks and mortar, however bleak, will require the same currency as in the West. The real battleground though is in the shops. Private enterprise here means profit and higher prices, which is why the mean masters of Moscow weren't rationing to cushion people against inflation. If Boris Yeltsin is the inspiration of the radical movement, then Gavril Popov is its economic guru and Prof. Popov is its serious candidate for mayor as well.

PROFESSOR GAVRIL POPOV, Radical Economist: [Speaking through Interpreter] We're in a contradictory situation. On the one hand, the goal of our reforms should be the free market. On the other hand, the steps to a free market today only make the crisis worse. We must ration the minimum requirements of life and give our people ration cards, and keep prices fixed for these goods.

MR. SMITH: So rationing, inflation and unemployment, something the Soviet Union has never known, it's inevitable if the radicals follow through on that platform. Will the people take this? Do they believe in it? As this transfer of power takes place in Moscow, public opinion is divided.

FEMALE RESIDENT: [Speaking through Interpreter] I believe this is unacceptable, because it'll bring unemployment and a big increase in prices.

OLDER FEMALE RESIDENT: [Speaking through Interpreter] I think it's going to lead to chaos.

MALE RESIDENT: [Speaking through Interpreter] The free market should be introduced, otherwise we'll all suffocate in filth.

YOUNG FEMALE CITIZEN: [Speaking through Interpreter] I don't think the measures being taken are enough. We need surgery. It's all taking too long to work.

MR. SMITH: After so many decades of one party rule, people don't have faith in the system, whoever is in charge. How are you going to persuade people that they can believe in this?

SERGEI STANKEVICH, Moscow City Soviet: It is a serious test for us because our people are tired from endless competition of programs, platforms, concepts, theories and so on. They demand immediate changes, changes that can be felt in everyday life, and I do understand such kind of demands so we can use material resources in Moscow, in Leningrad, in other cities, in order to use the difference in practice, to give our people to feel the difference between democratic rule and bureaucratic rule.

MR. MacNeil: Two analysts join us now. Ed Hewett is a senior fellow at the Brookings Institution in Washington. He's written and edited several books on the Soviet economy. Vladimir Kontorovich is an assistant professor of economics at Haverford College and has done research on the Soviet economy. He emigrated from the Soviet Union 12 years ago, joins us from public station WHYY in Philadelphia. Prof. Kontorovich, first on today's news regarding Lithuania, how effective will Gorbachev's threat be to cut off the export of some crucial goods to Lithuania?

VLADIMIR KONTOROVICH, Soviet Analyst: Well, this will certainly be a damaging blow to Lithuanian economics. It can bring to a halt both industry and Soviet society. The question, however, the interesting question isn't economic. Of course, if you cut off power supplies and gasoline, modern industry cannot work. The interesting questions is what happens when patients in Lithuanian hospitals start to freeze and suffer without power, other essential services are cut off and this news is I think shown on MacNeil/Lehrer Newshour. This is I think what Lithuanians are expecting to happen and then they expect to see a reaction from the West.

MR. MacNeil: Well, Mr. Hewett, do you think that it will cause the Lithuanians to do what Gorbachev wants or stiffen their resolve?

ED HEWETT, Soviet Analyst: I think it'll eventually cause them to do what Gorbachev wants. This is actually a very interesting situation. I mean, if Lithuania is as interconnected with the Soviet economy as Gorbachev claims it is then he's just getting a hammer poised over one of his fingers and about to smash it. Remember, Lithuania provides major port services for the Soviet Union. Many of the enterprises that'll be starved are Soviet enterprises Gorbachev claims that he owns. So it isn't as clear cut as it looks today.

MR. MacNeil: The Lithuanian President Landsbergis said in the statement we quoted earlier that this would hurt the Soviet Union too.

MR. HEWETT: It will hurt the Soviet Union. These are two negotiating partners that are still sparring and I think there's a decent chance that they're going to come to a conclusion, and we're still just in the early stages of a negotiation.

MR. MacNeil: Do you think that too, Prof. Kontorovich, that it'll cause the Lithuanians to knuckle under, or they'll resist?

PROF. KONTOROVICH: I don't think that the Lithuanians will take back their declaration of independence anytime soon. I think they took into account the possibility of economic breakoff.

MR. MacNeil: Well, let's move on to the economic reform in the Soviet Union. You just saw this report from Moscow. Prof. Kontorovich, is the Moscow model we just heard about likely to be copied by Gorbachev and his Presidential council as they meet this weekend?

PROF. KONTOROVICH: It looks very likely that large part of this model will be copied. There are rumors of 29 political measures, laws, or new regulations being discussed and to be enacted soon that will form the backbone of a very radical economic change. So it's certain that radicalization of economic reform is going to come.

MR. MacNeil: Do you agree with that, Mr. Hewett?

MR. HEWETT: Oh, sure. It's coming. It's coming in two ways. The laws that you're hearing about will be passed. Also Gorbachev is going to use his power of decree to even go to the edge of what the laws will allow. Clearly he intends to radicalize the reform quickly.

MR. MacNeil: Can the Soviet economy, the whole Soviet economy, move towards a market economy as rapidly as the new leaders in the City of Moscow think they can move that city's economy?

MR. HEWETT: Oh, I think they can do it if they want to do it. I mean, you know, many people talk as one woman did on the tape about chaos and there will be some chaos, but I must say they're living in chaos now. I think anything would be better than what they're experiencing nowadays. There are about 1200 products commonly purchased that are followed now in the Soviet Union. There are less than a hundred of them now that are freely available. It is simply a nightmare on a daily basis to live in the Soviet Union. A market would make that situation better.

MR. MacNeil: What do you think, Prof. Kontorovich of the Moscow idea of rationing some goods to get around the sudden price rises that would come from moving to a market economy, is that likely to be adopted, do you think?

PROF. KONTOROVICH: I don't know what the plans for national reform are. I don't think rationing is a good idea when you switch to a market. In the short run, it will give rise to a black market and a lot of resentment.

MR. MacNeil: Another Soviet official was quoted on the wires today, I've forgotten his name, but he was the head of the National Prices Council I think, as suggesting what might be introduced would be a three tier price system for a while. What do you think of that?

PROF. KONTOROVICH: Well, I wonder how one would prevent from goods intended to be traded at one kind of prices from being traded at another kind of prices, and again, this black market arbitrage that enrages people so much.

MR. MacNeil: Sergei Plekhanov was quoted in that report as saying that we shouldn't underestimate the effects of the elections of these new local governments, the new local Soviets, who are far more reform minded and will be willing to carry it out. What do you think of that, his observation? Do you agree with that, that there are out in the country now new local governments much more willing to accept some radical solutions than there were?

MR. HEWETT: Oh, I think clearly that's happened. The Soviet Union could begin to look much more like Italy in the '60s and '70s in which the cities are run by more radical governments than the center and if they prove they can make the system work. That's part of what's exciting about political developments in the Soviet Union is that it isn't all run from Moscow and indeed, if you're going to create a market economy, you're going to have to create it from below more than from above.

MR. MacNeil: Because a lot of observers have been saying, and especially some of the more pessimistic ones here, that it will be impossible or extremely difficult for Gorbachev to introduce any radical reform to a market because of all the pain that it will cause and the resistance that it will cause. Are you saying that the new political structures could make that outcome more optimistic for you?

MR. HEWETT: I think people overestimate the barriers to introducing a market economy. It's true it will be painful but the current situation is extremely painful. This is an economy that looks more and more like Poland in 1978 on the verge of an economic collapse. Output's falling, prices are accelerating. It is extremely painful to be a Soviet consumer and actually the full introduction of a market would make things better quite quickly.

MR. MacNeil: What do you think, Prof. Kontorovich, of the influence of these new local elected governments and their willingness to help implement reform?

PROF. KONTOROVICH: Well, I think this is a very important, necessary thing for the Soviet economy. One reason why the economy is plummeting for the second year in a row is there has been an erosion of state power in government. Government is very necessary even for a market economy, maybe especially for a market economy, and these new local Soviets may be the beginning of a new legitimate power that will solidify government authority. This is a precondition for any successful reform.

MR. MacNeil: You both, I'm reading you both as sounding rather optimistic about this. I'd like to know whether I'm reading you right. You both agree that it's likely that Gorbachev will put through some new quite radical reforms as laws and try to move rapidly towards a market economy. Now the West, the United States, have been urging him to do that for a long time. Does this mean it's all going to work, Prof. Kontorovich?

PROF. KONTOROVICH: Well, if I sound optimistic then only in the long run may be for the early 21st century, and I sound optimistic because the steps that are being made are necessary steps that experts were urging Soviet authorities for decades, it doesn't mean that these necessary steps will work immediately or work like magic. I don't think that market, well, some of the improvements will come very fast, but to get economy moving and maybe to get economy back to its 1988 level of GNP will take quite a while. Actually I expect the decline of the economy to continue. The matter is a free market consists of many elements. We don't really know how many elements, and I really don't believe that any team of experts, much less the one that's in charge of Soviet reforms, will do it right on the first try, but the first try is, nevertheless necessary.

MR. MacNeil: How optimistic are you that if they do introduce these radical reforms and move to a market this rapidly, Mr. Hewett, that it can work?

MR. HEWETT: Oh, I think it can work somewhat faster than Prof. Kontorovich believes. Gorbachev is really preparing to give this economy a cold bath. The critical issue for me over the next few months is whether he goes all the way through with it, but secondly whether a new government is formed. The most important point that we've made here is that the current government has almost credibility, unlike the Polish government, which is trying to do a radical reform, so that we're going to have to see a dramatically new government. My choice actually for a new prime minister would be someone like Antole Sobczech, the Leningrad lawyer who's been such a dramatic force in this society. If Gorbachev doesn't do something dramatic like that, he's going to lose control of this economy very soon.

MR. MacNeil: Just to conclude, just how bad a condition is the Soviet economy in right now?

MR. HEWETT: The Soviet economy today looks like Poland on the verge of the '79 collapse. That caused a collapse in living standards and created solidarity. They are in the most serious crisis they've been in in the post war period. Many Soviet leaders are now frightened to death and they should be moving very very quickly.

MR. MacNeil: Prof. Kontorovich, how bad?

PROF. KONTOROVICH: Soviet GNP is declining for the second year in a row, so I think Soviet Union isn't on the verge, but somewhere in the beginning of decline similar to Polish decline of '79-'81. Soviet economy, declined, shrunk last year by 1, 2 percent, will shrink this year by a larger margin, and even if market reforms are announced this year, I don't think they will make much difference throughout this year, so we may well see a Soviet economy 10 percent smaller than it was in 1988 before market reforms start to do anything at all.

MR. MacNeil: Well, Prof. Kontorovich, Mr. Hewett, thank you both for joining us. Judy. FOCUS - GASTRO GLASNOST

MS. WOODRUFF: To get a crash course in free market economics, the Soviet Union recently sent a group of food trade representatives to the heartland of American, Nebraska, to learn the ins and outs of our food industry. Fred De Sam Lazaro of public station KTCA in Minneapolis, St. Paul, reports on their visit. [COMMERCIAL]

MR. LAZARO: Poking fun at the Russians is about as close as many American companies have come to doing business with the Soviet Union. But what might surprise producers of this ad is that it is true, the Soviets really like American chips and they're bringing that message to America. At the Omaha, Nebraska, Frit-O-Lay factory this delegation of Soviet food industry was full of praise for the product. Corn chips would seem an unlikely priority for a country whose grocery shelves lack far more basic foods, but delegation leader Vladimir Sheremetev says the chips are symbolic of a modern food industry, something he says the Soviet Union doesn't have.

VLADIMIR SHEREMETEV: The field of agriculture, food processing, we need also very much to study and try to introduce elements of your marketing system in our country.

MR. LAZARO: Sheremetev says the Soviet Union has the ability to grow plenty of food. He notes that it produces about 1/4 of all the potatoes and milk in the world. The problem is up to 1/2 of it spoils before it reaches consumers.

GEORGE MALNYKOVICH, Food Industry Trade Association: Their technology is, is where we were maybe in the '40s and '50s.

MR. LAZARO: George Malnykovich heads an association of American Food Machinery Companies, co-host of the Soviet's Nebraska visit. He said his Soviet counterparts lack the infrastructure that's so important to the American food industry, refrigeration, transportation, storage and packaging facilities. Our system, for example, allows potatoes harvested in Idaho last August to be sold in April in supermarkets in Nebraska.

GEORGE MALNYKOVICH, Food Industry Trade Association: A supermarket is a microcosm of everything that is wrong with their food industry.

MR. LAZARO: And Malnykovich says one of the most effective ways to show Soviet visitors how the American food industry works is a "hands on" visit to a grocery store.

GEORGE MALNYKOVICH, Food Industry Trade Association: And they'll turn to me and say why do you have five types of beans, why not just have one, it's a terribly inefficient use of space, you could have all your beans in a smaller area, and that's because I said, and I pick out a can and I said, this bean is good because we have this bean and we have this bean. I said, if we had only this bean, it would not be as good and you would pay probably twice as much for it.

MR. LAZARO: For these Soviet officials, most on their first trip to the West, the Nebraska visit was a crash course in basic market economics. [SPOKESPERSON TALKING TO SOVIET VISITORS]

MR. LAZARO: At the research kitchens of ConAgra, one of the nation's biggest makers of frozen food products, they were told of the two big "c's" that drive American business, consumers and choice, alien concepts to most Soviet food producers.

MR. MALNYKOVICH: The command economy says you make beans and you make this many beans in this type of packaging format and that's it and no surveys of consumer needs, no Ralph Naders pushing them to, you know, do it better.

MR. LAZARO: It may seem odd to hear an industry representative praise Ralph Nader, but it's even more surprising to hear glowing praise for the U.S. food system from these Soviet bureaucrats.

ANATOLY BELICHENKO: [Speaking through Interpreter] We tie a lot to our leader, that is, with Mikhail Gorbachev. Now we are, we have now become almost a new type of society and so we're saying what we think.

MR. LAZARO: Anatoly Belichenko is a senior official with the food processing arm of the Soviet bureaucracy. He notes that the Soviets are especially interested in trade with the U.S. because unlike the Europeans, American companies have expertise in large scale operations and in serving vast geographic areas.

MR. BELICHENKO: [Through Interpreter] I should say that with the Pepsicola Company we've been working since 1973. That's what, 17 years, and with the relations with that company very characteristic and I would say that the example of that company could give inspiration to other American companies.

MR. LAZARO: U.S. experts say there is interest in Soviet trade among American fi lY yut no incentives. They say the Soviet Union does not enjoy most favored nation trading status from the U.S. government. That would make trade far more lucrative. But former Nebraska Congressman John Cavanaugh, who heads a company that links potential U.S. and Soviet trading partners, says the Soviet business environment remains the big disincentive.

JOHN CAVANAUGH, Businessman: And the convertibility of the ruble is the principal problem, because even if you're successful in selling product into the Soviet Union, you're a captive of the ruble economy.

MR. LAZARO: Because rubles are not convertible to dollars, Cavanaugh says Western companies have had to use a barter system to bring home their profits. Pepsi, for example, is essentially paid in Stolichnaya Vodka, which it sells in turn in the U.S. But the Food Machinery Association's Malnykovich says the Soviets are running out of resources that would interest his member companies.

GEORGE MALNYKOVICH, Food Industry Trade Association: I may not be the company that wants a million cases of Matushka dolls in payment for $1.7 million of equipment. I may demand, you know, that some other hard currency be used.

MR. LAZARO: Although committed to developing a market approach, Soviet officials say this process cannot be rushed as they say it was in neighboring Poland.

VLADIMIR SHEREMETEV: They went into a marketing system. They have shelves full of the products but the population cannot afford to buy.

MR. LAZARO: And many experts agree that Pres. Gorbachev, far more than his Polish counterpart, can ill afford the sudden jump in inflation and unemployment Poland has endured since opening up its market. Consequently, Cavanaugh says, American firms like Soviet policy makers are likely to adopt a "wait and see" approach.

MR. CAVANAUGH: They say why, why would I go to the Soviet Union now? Why don't I wait until they've worked their way through this process a little bit longer? I have many opportunities in Europe and Asia that are much easier and in which there will be a much more immediate economic return.

MR. LAZARO: But even before complete liberalization takes place, Soviet and U.S. officials agree some trade is still possible. Soviet trade laws are easing, albeit slowly. They now allow more joint ventures which will be discussed in future exchanges like this. Under such arrangements, U.S. companies would manufacture products in the Soviet Union, export a portion to third countries for hard currency and split the profits with their Soviet partners.

SPOKESMAN: [Speaking to Soviet Food Producers] Through the mail packed in dry ice and styrofoam package container we have four frozen ribeye steaks.

MR. LAZARO: Meanwhile, the Soviet food producers in Nebraska took copious notes, looking for ideas they could take home, in some cases wishful thinking according to their hosts.

MR. MALNYKOVICH: Well, frankly, I think a lot of the new technology that they'll be seeing and particularly in the area of packaging, microwaveable packaging and the like, is ten, fifteen years downstream for the Soviets. I wouldn't even venture to guess how many microwaves there are in the Soviet Union, but it would be literally, you know, a handful.

MR. LAZARO: Most experts agree that adequate food supplies will be pivotal to the success of the Democratic reforms in the Soviet Union. And even though the American system may not readily apply back home, experts say the Soviet visitors can learn much about productivity and efficiency from what Americans call the junk food industry.

MR. MacNeil: Still ahead on the Newshour updating the drug war in Washington, D.C., and political analysis by Gergen & Shields. UPDATE - D.C. DRUGS

MS. WOODRUFF: The war against drugs in Washington, D.C., is next. A year ago William Bennett, Director of the Office of National Drug Control Policy, declared a drug emergency in Washington. He said the Bush administration would make the city the first target of a high intensity drug anti-drug effort. Today Bennett and Washington officials gave the anti-drug effort an incomplete grade. Correspondent Kwame Holman updates the story.

MR. HOLMAN: 1988 and '89 were the deadliest years on record in Washington, more than 800 murders, well over half related to a thriving trade in crack, heroin, cocaine and other illegal drugs. Like other large cities, the drug culture had become a way of life for many Washington residents and officials despaired about the pervasiveness of the problem. In that atmosphere last April, Drug Policy Director William Bennett announced the federal government would intervene to help Washington because city officials were failing on their own.

WILLIAM BENNETT, National Drug Policy Director: [April 1989] Here where the problem is so glaring, so out of control, serious questions of local politics and governance can no longer be avoided or excused.

MR. HOLMAN: Bennett promised technical assistance from the FBI, aid from the military, possible deployment from the National Guard, more and tougher prosecutions of drug offenders. He also promised to move some city prisoners to federal jails and build new prisons for Washington and the surrounding region. But six months later, Bennett complained that the city was dragging its feet, especially on building a new prison.

MR. BENNETT: Do we want to see drug dealers down the road in a prison, or do we want to see them down the street in the shadows? And we're going to have to bite this bullet as a country and build these places and accept them, or the guys are not going to be in prison; they're going to be down the street, down the hall, down the block.

MR. HOLMAN: Washington officials say finding a place for a new prison has been a delicate political issue for years and Bennett should have not expected a quick resolution. It was typical of disputes to follow between Washington officials and their new federal partners. City officials say Bennett's staff has been detached, uninvolved in the anti-drug efforts of the city or the community, and for its part, the city has its own image problems because of the much publicized cocaine arrest of Mayor Marion Berry who is scheduled to go to trial in June. Questions about the mayor upstaged this morning's press conference where Bennett and Washington drug czar Sterling Tucker were to report on the year old D.C. initiative.

MR. BENNETT: Look, I don't really comment on the mayor, I don't really think about the mayor. I think about the citizens of Washington and what we can do to improve that situation.

STERLING TUCKER: I'm the principle spokesperson for this problem, so whatever's wrong with this war on drugs is my responsibility in the District of Columbia, and I accept full responsibility for it.

MR. HOLMAN: A seemingly uncomfortable Bennett admitted his much heralded intervention into the D.C. drug war had shown no significant success.

MR. BENNETT: The City of Washington is still in trouble. Helping fix that trouble is not easy, has not been easy, as I knew and I said last year at this time. Work in some very serious areas on some very serious topics is not as far along as I'd like to see it.

MR. HOLMAN: Bennett said the most glaring example of that lack of progress is the city's homicide toll, which last night reached 134, a pace that would set a new record.

MR. BENNETT: Last year's D.C. murder rate and an apparent continuing trend into this year are a bitter disappointment to all concerned.

MR. HOLMAN: On the issue of a new prison to ease massive overcrowding, Bennett said the federal government would accept 500 new D.C. prisoners, but his promised new facility was not in sight.

MR. BENNETT: We had initially intended to construct and operate a new federal prison at an unidentified -- at an identified area site, as then unidentified, as you know, but this project has now entered the American NIMB or Not In My Backyard Syndrome, but enough said about that at the moment.

MR. HOLMAN: But there also were hopeful signs in Bennett's report and they seem to be reflected in Washington communities like this one once ravaged by drug-related gun battles. Bustling, open air drug markets once were commonplace here and in other of the city's mostly poor, mostly black neighborhoods. They are no longer in evidence. Though city officials say many of the sellers and buyers simply have moved in-doors or to more isolated streets like this one. An apparent increase in police presence here in the city's notorious 7th district may be one reason. A few blocks away the open drug trade also has been harassed by citizens patrols made up largely of middle aged residents. Organizers say their presence eliminated a virtual curbside drug supermarket that flourished on this block two months ago. It's estimated there are more than 6,000 patrol members throughout Washington.

JAMES FOREMAN, D.C. Resident: Mainly it's losing, losing the community, losing their kids, losing their homes, this is what they're afraid of really.

MR. HOLMAN: But organizer Foreman says his patrol came about without help from William Bennett's federal forces or from Washington officials.

MR. FOREMAN: No one from the federal government has approached anybody in any of the orange hat coalitions that I know of. We have no input from the federal government per se and no input from the district government besides the police department.

MR. HOLMAN: Washington also has seen a sharp decline in the use of the hallucinogen PCP and may be benefitting from the apparent national decline in cocaine use. Buttressing such hopeful signs is a new statistic. Washington, alone among 23 major cities, recently saw an 11 percent drop in the number of people arrested who tested positive for cocaine.

MR. BENNETT: The drug use data accumulated through such programs is thought to be significant for two reasons. Arrestees are a population in which drug use is especially concentrated and use levels and trends among arrestees tend to anticipate those for the general population.

MR. HOLMAN: But Washington officials say if the number of cocaine users here is, indeed, down, the supply and purity of the drug have not diminished. And the deadly rivalry among drug dealers continues. For residents of the violence plagued 7th district like Bill Easter comes criticism of the joint federal-city anti-drug effort.

BILL EASTER, D.C. Resident: A lot more could have been done. I think there's been a little too much bickering between the federal government and the local government as far as the, you know, where the blame goes, you know. They blame each other for, I guess, the funds or manpower or not enough this and that, and it's not good to hear all that bickering, especially when you're the residents. You know, we're all keyed in on trying to clean up the drugs and the governments fight and argue among themselves and it's not a good morale booster.

MR. HOLMAN: Others say the Bennett plan missed the mark by failing to add significant drug treatment facilities to cut down Washington's waiting list of drug users.

DELSHAUN ADAMS, D.C. Resident: If we attempt to make an effort in helping them, it may help theirself, then the drug dealers wouldn't be able to get these fancy cars, all this money, you know, because they're livin' off of us, they're livin' off the people that are on drugs.

MR. HOLMAN: So one year after the federal government's first targeted domestic anti-drug initiative, the results in Washington are mixed and pessimists say the improvements may just be temporary swings in the drug cycle and that the issues of poverty and economics that contribute to the problem remain unaddressed. FOCUS - GERGEN & SHIELDS

MS. WOODRUFF: Next some political analysis from Gergen & Shields. It may be Friday the 13th, but we're feeling lucky tonight to have with us David Gergen, Editor at Large at U.S. News & World Report, and Mark Shields, Syndicated Columnist for the Washington Post. Gentlemen, we had some results in the Texas Democratic Primary this week. Ann Richards, who had put on an interesting fight, came in what, 14 points ahead of her opponent. Were you surprised by the results, Mark?

MR. SHIELDS: I was. I was surprised. I think it was a very impressive victory by Ann Richards. She won it in kind of a fascinating fashion which I think sets her up to be in good shape for the fall. She has an unshakable constituency, I mean, an incredible battering by Attorney Gen. Jim Mattox, and the whole question of whether she had ever used illegal drugs before, 10 years ago earlier, and her insistence on refusing to address that question, that constituency of hers was unshakable, Judy, of college educated women in particular, and in the major cities. I mean, she got 76 percent of the vote in Ft. Worth, Tarent County, 74 percent in Austin, which is Traverse County. It was a very impressive performance and won among blacks as well.

MS. WOODRUFF: David, does that translate into November victory as well?

MR. GERGEN: I'm glad that Mark said he was surprised about the results, because I think he thought maybe Mattox would take it. And I imagine Mark's going to be surprised again in the fall.

MS. WOODRUFF: Not to put two points in there.

MR. GERGEN: Right. My sense is, Mark, while she did win a very impressive victory that she still comes out as the underdog, and the really interesting question is Clayton Williams, the Republican candidate, I think has struck people as much more vulnerable than we thought a few weeks ago. Some offhand comments have gotten him in trouble in Texas, the kind of comments an amateur in politics makes and suggests that he has more bumps in the road ahead. So I think it's winnable by Ann Richards, but at the moment, she's still on the defensive. She has no real program other than the women's issues and he's got a much more positive program. I think the interesting question about this race is going to become whether the women's issues will translate into a big political gain for her.

MS. WOODRUFF: When you say women's issues, what are you referring to?

MR. GERGEN: Well, she's now going to run as a pro-choice feminist, and Mark is absolutely right.

MR. SHIELDS: No, I don't think she is, but go ahead.

MR. GERGEN: She's much more liberal, she's much more liberal than Clayton Williams.

MR. SHIELDS: Sure.

MR. GERGEN: And she's very pro-choice and Clayton Williams is very pro-life and is a real cowboy and is a rough sort of cowboy. And my sense is that that --

MS. WOODRUFF: That that's what's going to sell?

MR. GERGEN: Well, I think that's going to be the interesting question, will that sell in Texas. We saw that Doug Wilder in Virginia, for instance, a black candidate, was able to turn the abortion issue very much in favor as a pro-choice candidate and if Ann Richards can do that, I think it will have a major impact on politics around the country.

MS. WOODRUFF: Mark.

MR. SHIELDS: Ann Richards will not win the race on abortion. Ann Richards will win the race in Texas, quite frankly, on the battleground of electorally in Texas, or become younger voters in and around the major metropolitan areas, who have tended Republican strongly in presidential elections, but have been ambivalent, oftentimes voting Democrats for Congress and at the local level. Those are the people. Ann Richards has to cast this race in the future of Texas. If it's a race about the history of Texas and its past glories, Clayton Williams, the cowboy, will win, but David said one of his offhand remarks, one of his offhand remarks was, "Rape is inevitable. Lean back and enjoy it." Now that, in a strange way, Judy, Clayton Williams helped Ann Richards, because I think it persuaded her voters and her supporters of how important this race could be and it kind of heightened in them that this was an important race because she's the first woman really in modern times to have a chance to be elected governor of Texas.

MR. GERGEN: The problem with that analysis, Mark, and you may be right, but the problem with the analysis is that she has no program for the future, other than women's issues. She has been on the defensive so long in the primaries, in the two primaries she's gone through, I don't think she's developed much of a program and I think Clayton Williams is ahead of her on that.

MR. SHIELDS: I think she has to fill out. I mean, I think her program has been skeletal.

MR. GERGEN: Skeletal. You can see right through it.

MR. SHIELDS: Clayton Williams by contrast has a program that is going to cause him problems. He's going to finance a college education for everybody in the state, Judy, by turning out the air conditioners in the --

MR. GERGEN: But Democrats around the country are sensing that perhaps abortion does work for them better than they had first thought.

MS. WOODRUFF: That's what I wanted to ask, whether or not abortion becomes the issue or one of the issues in Texas, how is it looking elsewhere? I mean, does it look like it's going to make a difference?

MR. GERGEN: A group called Democrats for the '90s has a private survey that's causing some buzz in Democratic circles that showed if you asked voters if you had to face a pro-choice Democrat versus a pro-choice Republican who would win, that that Republican wins by 2 points, but if you flip that and say, how about a pro-choice Democrat versus a pro-life Republican than the Democrat then wins by 16 points.

MS. WOODRUFF: Why is that?

MR. GERGEN: They're saying being pro-choice against a pro-life Republican is worth as many as 15 to 16 points, because they think it brings out the women's votes and it mobilizes a lot of people who are pro-choice.

MS. WOODRUFF: So that'll help them in --

MR. GERGEN: Presumably and those numbers strike me as inflated but it's giving Democrats a lot of reason to think maybe this really is an issue we can use across the country.

MR. SHIELDS: I don't subscribe to the numbers. I do think there's no question that the pro-choice political movement is on the offensive while the pro-life political movement has been on the defensive. I think, as Congressman Mickey Edwards of Oklahoma put it to me this week in an interview that in America's political position is that it's against abortion but for choice. There's an ambivalence. And I think that most Americans are still very much in the ambivalent middle on the issue.

MR. GERGEN: That's right, but anytime there's a pro-life candidate who runs the other side can say but you're going to threaten to take away some of our rights so that's what mobilizes the left on this issue or mobilizes the pro-choice people so that so far has cut mostly in favor of the pro-choice people.

MS. WOODRUFF: On abortion the Catholic Church announced this week, the Bishops, that they were going to spend $5 million over the next five years in an anti-abortion campaign, they hired a PR firm, they hired a well known conservative Republican pollster. What about this? Is this sort of unprecedented, David?

MR. GERGEN: It's unprecedented for the Church to launch a public relations campaign through using its own money to go outside for a public policy issue. They've done it in a recruiting campaign but they've never done it this way before. There are many conservatives frankly who welcome the fact that the Church is going to join this issue more fully than it has in the past and it's really going to fight over what they consider a high moral question. On the other hand, I think there are a lot of Catholics whose eyebrows shot up this week on the idea here's a church that's got nuns who are impoverished, that's got people sleeping in their front doorsteps who are homeless, and why is it taking $5 million and putting it into a PR campaign, into a really high powered PR firm.

MS. WOODRUFF: Mark.

MR. SHIELDS: I think there's felonious inconsistency here on this debate, Judy. First of all, most criticism of the Catholic Church involvement politically has come from the political right. David's friends in the Reagan White House were quite upset in 1987 when the Bishops' Pastoral Letter on poverty criticized Reaganomics strenuously. Liberals endorsed the nuclear disarmament position of the Catholic Bishops in 1982. The Catholic Bishops and hierarchy and clergy were very much involved in the civil rights struggle in this country. They have been in favor of workers' right to organize. So it comes down to what issue. The Catholic Church now spends $850 million for poverty each year. There are 13 shelters for the homeless within the shadow of the archdiocese of Washington.

MS. WOODRUFF: You're saying that 5 million --

MR. SHIELDS: I think that what they're arguing is, and I think David touched on it earlier, and I think he's absolutely right, the debate, the terms of the debate on abortion have become, George Bush and so many other political stalwarts who milked this political issue and its support have retreated, they have been absolutely silent on the issue, and that what the Catholic Bishops are concerned about, whether rightly or wrongly, is that there is nobody else making the other side, that there are two lives involved here, that it is not simply a matter of choice or who's deciding, but what is being decided.

MS. WOODRUFF: The pro-life movement has been --

MR. SHIELDS: They obviously don't feel that it's been very effective.

MR. GERGEN: But they do have their pulpits and there's a good question about why they've got the pulpits all over the country. They need to spend money on public relations firms. I do think there's one other interesting point on this. Mark's right. The Bishops in the past have come out with positions that seem to be from the left in the early '80s and the right was upset, but now it's just like the Reagan judges being appointed. Gradually Reagan appointed more and more judges to the benches. This Pope, John Paul II, has now appointed more than half of the Bishops in this country. As he appoints more and more, the Bishops have become more conservative and they're now starting to take quite conservative positions.

MS. WOODRUFF: And getting more involved in politics, is that what you're saying?

MR. GERGEN: Getting more involved in politics, absolutely.

MR. SHIELDS: I don't think the Catholic Church's hierarchy is more involved unless you're going to talk about Poland and Eastern Europe.

MR. GERGEN: But how about telling politicians if you don't follow our line on abortion, you're going to be condemned to eternal damnation?

MR. SHIELDS: I don't think that's the position of the Catholic Bishops. I think that was --

MS. WOODRUFF: We're talking here about New York, Mario Cuomo, the Bishop.

MR. GERGEN: That's right.

MR. SHIELDS: There was a bishop in New York who did say that, jeopardizing his immortal soul, going to hell.

MS. WOODRUFF: Is that something that we're likely to see other Bishops do?

MR. SHIELDS: I don't think so. I really don't. I don't think that's the way the debate is going to be framed by the Bishops or by anybody who's interested. Politics in its final analysis is a matter of addition, not subtraction. When you start using terms like that, you're going to hell, you're really talking about subtraction.

MR. GERGEN: But, Mark, there's no question that the Bishops are now more conservative on AIDS, they're more conservative on abortion, they're more conservative on the women's position in the Church.

MR. SHIELDS: On economics, on Central America, I mean, the Reagan White House was up in arms because of the Catholic Bishops' opposition to support of the Contras.

MR. GERGEN: Well, I would just argue the Bishops are more conservative than they were 10 years ago and they're more involved in politics and they're injecting the Church more deeply.

MS. WOODRUFF: Take New York as an example. Is Mario Cuomo in trouble because of this brouhaha that's developed?

MR. SHIELDS: Mario Cuomo is not in trouble, Judy, but is contested in New York as Franco was in Spain. The Republican Party can't find anybody to run against him. This is a state, New York, that now is 47th in its bond rating, it's got all kinds of economic problems, and the Republican Party in New York is so bankrupt they can't find anybody who isn't under indictment or de-tox to run against Mario Cuomo.

MR. GERGEN: I would argue that the attack on Mario Cuomo by the Church actually helped Mario Cuomo politically, that there was a backlash against that, that people sort of rallied to his side, why is the Church coming out like this. I do think that Mario Cuomo is getting caught up a bit like the rest of the Northeastern governors in this downdraft of the economy and as the bond rating in New York has been lowered a couple of notches in New York, as Mark said, I think it's going to make it more difficult for him to launch a successful Presidential bid. He's going to run well in New York this well because he doesn't have any opposition. He doesn't look quite as strong nationally.

MS. WOODRUFF: Good subject for future discussion. Gentlemen, thank you. Mark Shields, David Gergen, thank you both. RECAP

MR. MacNeil: Once again, Friday's main stories, Soviet Pres. Gorbachev threatened the republic of Lithuania with an economic blockade unless it backs away from its independent stance. This evening the President of Lithuania said the Kremlin knows he cannot meet this demand. Pres. Bush appealed to Moscow for restraint, saying it was no time for escalation, and the Soviet Union admitted to the 1940 massacre of thousands of Polish soldiers captured during World War II. Good night, Judy.

MS. WOODRUFF: Good night, Robin. That's our Newshour for tonight. We'll be back Monday night. I'm Judy Woodruff. Thank you and have a good weekend.