The MacNeil/Lehrer NewsHour

MR. MacNeil: Good evening. I'm Robert MacNeil in New York.

MR. LEHRER: And I'm Jim Lehrer in Washington. After our summary of the news this Tuesday, we have a documentary report and a full and frank discussion about reforming the new nation called Russia, and a look at the coming back again of the Chrysler Corporation. NEWS SUMMARY

MR. MacNeil: President Bush today fired the State Department official accused of searching President-elect Clinton's passport files. Mr. Bush accepted the resignation of Assistant Secretary of State Elizabeth Tamposi. Officials then told her she had until tomorrow afternoon to clean out her desk. The case originally focused on allegations that State Department employees had searched files on Clinton and his mother in an attempt to help the Bush re- election campaign. But today's Washington Post reported that officials also looked through the passport records of independent candidate Ross Perot. State Department Spokesman Richard Boucher declined to say whether Tamposi had done anything wrong. He said an internal investigation was continuing.

RICHARD BOUCHER, State Department Spokesman: Upon the recommendation of the Acting Secretary of State, the President today accepted the resignation of Betty Tamposi, Assistant Secretary for Consular Affairs, effective immediately. At this point, I'm afraid that I can't go into much detail on why the resignation was accepted. The inspector general's report will be completed shortly, and at that point you'll be able to draw your own conclusions about the reasons for accepting the resignation.

MR. MacNeil: In Little Rock today, Clinton spokesman George Stephanopoulos said the controversy should be investigated more thoroughly because Tamposi was a political appointee.

GEORGE STEPHANOPOULOS, Clinton Spokesman: There was, you know, a lot of abuse of power during this election, but it seem that it's getting cleared up now.

REPORTER: Is an internal investigation sufficient?

GEORGE STEPHANOPOULOS: Well, let's see what they come up with. This is a good step to have Ms. Tamposi replaced, but we need a full report. The preliminary reports coming out show that there were several visits to the State Department, that they clearly did a completely unwarranted investigation into Ross Perot's files, and we have to get to the bottom of it. Let's see what they come up with first and see if we need anything further.

MR. MacNeil: On Capitol Hill today, Democrats and Republicans in the Senate elected their leaders for the new session of Congress which convenes in January. Sen. George Mitchell of Maine was re- elected as the Democrats' Majority Leader and Sen. Bob Dole of Kansas will again serve as the Republican Leader. Jim.

MR. LEHRER: The wholesale inflation rate was up .1 percent in October. The Labor Department report said today increases in the cost of gasoline, fruit and vegetables were offset by a big drop in the price of new cars. Member nations of the General Agreement on Tariffs & Trade, known as GATT, met in Geneva, Switzerland, today. They instructed the organization's director general to intervene in the trade dispute between the United States and the European Community. The two-year deadlock centers on farm subsidies. Last week, the United States announced a plan to apply steep new tariffs to European white wine. The European Community is now considering counter measures against U.S. imports. The GATT chief said he would tell the two sides their fight threatened to wreck the entire global trading system.

MR. MacNeil: Boris Yeltsin today warned that hard-line forces in Russia were plotting a coup against him. He suggested that he would invoke emergency powers, if necessary, to stop them. His remarks came during a speech to the British parliament. Edward Stourton of Independent Television News reports.

EDWARD STOURTON, ITN: It's an opportunity very few visiting leaders get. Until Boris Yeltsin addressed the joint Houses of Parliament today, only leaders of Western allies had done so. The Russian President used the platform to powerful effect, warning that the enemies of his reform program are flourishing as Russia's economic crisis deepens.

BORIS YELTSIN, President, Russia: [speaking through interpreter] I shall be blunt. There are forces in Russia which are seeking to reverse thesituation. They include remnants of the old party elite who will not accept their loss of power, and they include militant nationalists. All these forces have become more active. They're playing up the hardships of the people in order to launch an open and massive attack.

MR. STOURTON: At his lunch with the queen, President Yeltsin spoke forcesomely. Praising her as an ordinary woman without regal heirs and graces, he said he felt he'd known her for years. Buckingham Palace has accepted in principle his proposal for a royal visit to Moscow. If it comes off, it'll be the first by a British monarch since the Russian royal family were killed during the Russian Revolution. Boris Yeltsin didn't come here expecting immediate cash aid. That would have been unrealistic. But he's left no one in any doubt that he needs support, and he's given a clear warning of what the consequences might be if doesn't get it.

MR. MacNeil: We'll have more on the problems facing Boris Yeltsin right after the News Summary. Britain today ordered an investigation into charges that cabinet ministers in Margaret Thatcher's government secretly approved arms sales to Iraq until just before Iraq's invasion of Kuwait. Such sales violated an arms embargo imposed by the government, itself. A controversy erupted yesterday when three British executives were acquitted of illegally sells arms manufacturing equipment to Iraq between 1988 and 1990. Prosecutors dropped the charges after a former trade minister acknowledged that the government knew about and encouraged the sales.

MR. LEHRER: Another truce has reportedly been reached in Bosnia. United Nations peacekeepers said Moslem, Serb and Croat forces met in the capital and agreed to halt all fighting as of Thursday. Many other cease-fires have been declared in Bosnia. So far none has held. U.N. officials also said Serb forces had blocked a Red Cross convoy of some 1500 refugees outside the capital. They were the first of a group of 6,000 mostly women and children granted safe passage out of Bosnia. The officials said they did not know why the convoy was stopped. It was headed for Croatia. The United States today expelled a Cuban diplomat for spying. The man was based at Cuban's mission to the United Nations in New York. He must leave the country within 48 hours. State Department Spokesman Boucher said the FBI had considerable evidence that he was engaged in espionage. He would not provide details.

MR. MacNeil: The Israeli army and Shiite Muslim guerrillas traded fire along the Israeli-Lebanese border today. It was the third straight day of the cross-border clashes. Israeli artillery slammed into several Lebanese villages, injuring four people. The apparent targets were strongholds of Hezbollah, a guerrilla group opposed to the Middle East peace talks. The shelling followed rocket attacks by Hezbollah on several Northern Israeli towns. Diplomats at the Middle East peace talks in Washington warned that the fighting could undermine the peace process.

MR. LEHRER: The state of New York's top judge resigned today after being charged with trying to extort money from his former mistress and threatening her 14-year-old daughter. Sol Wachtler, who was chief judge on the state's court of appeals, was arrested by FBI agents Saturday. A federal magistrate today freed him without bail but ordered him to remain at home wearing an electronic monitoring device. In California, a federal judge today ruled the military ban on homosexuals was unconstitutional. The judge refused to overturn a court order reinstating a homosexual sailor in the Navy. Keith Meinhold was discharged from the service in August when he disclosed he was gay. A U.S. District Judge ruled Friday he must be allowed to return. But yesterday, Meinhold was turned away from the Moppet Naval Air Base in California. His lawyers have filed for a contempt of court ruling against the government.

MR. MacNeil: Actor Chuck Connors died today in Los Angeles of lung cancer. He was 71. Connors starred in many movies and television programs, but he was best known for his role as the fast shooting Lucas McCain on the television series, "The Rifleman."

MR. LEHRER: And that's it for the News Summary tonight. Now it's on to the new Russian revolution and the return again of Chrysler. FOCUS - HARD TIMES

MR. MacNeil: Our lead story and major focus tonight is the mounting difficulties facing Boris Yeltsin, the Russian president, as he struggles to develop a market economy and democracy. Some experts believe troubles in the former Soviet Union will be the first foreign policy crisis President Clinton has to face after he takes office. Today in London, President Yeltsin said hard-liners were plotting a coup against him. Tonight we concentrate on Yeltsin's economic problems and the quite different reactions they meet here in the United States. But we start with a narrow focus, two Moscow families who see Yeltsin's crash course in capitalism very differently. We have a report from independent journalist Simon Marx, followed by a discussion taped yesterday.

MR. MARX: It is the Times Square of Moscow, the Picadilly Circus of Russia. On Gorki Street in the heart of the Russian capital, rich and poor co-exist alongside the old and the new. The latest scents from Paris are on display, so too are some apples and tomatoes. It's a dual economy, some goods for dollars, others for rubles, a monetary division that's splitting society. At Trinity Motors in Pushkin Square, Cadillacs and Chevys are sold for greenbacks. In a nation that once called itself a classless society, there are now fast cars on sale for those in the fast lane. On the other side of the street there's the other face of the economy and informal markets where the poor sell what they can find, or what they can grow, anything that will ease the pressure on their family budget. Dmitri Gavrilov is one Muscovite who says he has benefited from the market reforms introduced by President Yeltsin. At one in the morning, with temperatures at freezing point, he helps unload a fresh delivery of cars direct from New Jersey. Most are reserved before they reach the sales lot sold by Dmitri to people like Dmitri, Russia's nouveau riche cashing in on the free market. Dmitri got into the business by chance, meeting an American dealer who was looking for a Russian business partner, a lucky break that put him on the road to prosperity. He earns his salary in two currencies. He takes home 80,000 rubles each month. That's about $230 at current rate. But he's also paid another $300 a month in dollars. Combined, he earns more than 50 times the average monthly salary. Under the communists, his business would have been illegal, his activities described as speculation. He says President Yeltsin has given business a new respect in post Soviet Russia.

DMITRI GAVRILOV: [speaking through interpreter] Our people will not rise up against businessmen who are earning money honestly. The main thing that's been achieved just now is that people have understood that a person's social values ought to be expressed in money. That's the great turning point that's taken place in the country.

MR. MARX: Dmitri's office is on the ground floor of a Moscow apartment block, not any apartment block. It was here that the Soviet interior minister, Boris Pugo, committed suicide when the coup he helped lead collapsed last year. Now in rooms once used by the KGB to keep tabs on the block's residence, Dmitri and his wife, Svetlana, run their business, cars from the U.S., T-shirts from India, they'll sell anything they can find to an eager consumer market. But despite the changes the government has introduced, they say many of the bureaucrats who used to control Russian life still do so. And that makes them worried for the future.

DMITRI GAVRILOV: [speaking through interpreter] Those same party aparatchiks who were in power a year or eighteen months ago are in power today. Now they are in legal commercial structures, but the trouble is that just as they were unable to run business then, so they are unable today, and those same party aparatchiks who are in business will show their inability in the next six months or one year. And I fear that all these social experiments could lead to a social explosion.

MR. MARX: At Moscow's biggest dairy, there's the other side of President Yeltsin's reforms and talk of social explosion here too. Though the price of milk has risen, it's not yet been fully freed by the government. It's still subsidized to protect the children and old people who mostly drink it. But the dairy is paying more to produce the milk, more to the farmers, more to the electricity company, and more to its workers. As a result, output has plunged as the dairy switches machinery off to try and save money, and demand for milk falls as the price slowly climbs. The dairy is now working at just 30 percent capacity. Nina Vassiliev has worked here since it opened and like many workers, she says the morale of the Russian people is at a new low.

NINA VASSILIEV: [speaking through interpreter] The thing is that people have reached such a degree of weariness that very little hope remains. Of course, we wish we could live better, but since things are getting worse and worse in our country, I think that in the near future, our government will not make us happy. Maybe one day, maybe my children will have more than I have just now.

MR. MARX: Like other large factories, the dairy will now be privatized under a scheme President Yeltsin says will create millions of property owners, instead of a couple of millionaires. The dairy workers have not yet received the free 10,000 ruble privatization voucher worth around $30 that's being given to every citizen by the government to invest in the business of their choice. And many of them aren't too excited about it.

NINA VASSILIEV: [speaking through interpreter] I know very little because this is something new for us, but I think it's a big fraud. That's how I judge it.

MR. MARX: As well as cynicism on the factory floor, there's very little understanding about what privatization means, how it works, and what the rewards could be. There's also much suspicion that even if they do invest in the dairy, the workers will still be controlled by the management, instead of becoming part of it.

LENA VOITINSKAYA, Dairy Worker: [speaking through interpreter] It's difficult for ordinary people like us to make a go of such a huge factory which is worth several million dollars. We don't see any profit or gain, and I could regret putting money in, because then I might l lose my job. Anything can happen.

MR. MARX: The dairy's director, Vladimir Tanbov, also expresses doubts about the way the government is putting privatization into practice. Like a growing number of industrialists in Russia, he thinks the pace of reform is too fast.

VLADIMIR TANBOV: [speaking through interpreter] The way in which the government is carrying out privatization, the whole approach just now is wrong, in my view. First of all, these notorious vouchers which are being out to the population, what is a voucher? In my opinion, it's a piece of paper which means nothing.

MR. MARX: More pieces of paper worth increasingly less are the rubles that Nina earns at the dairy. She's paid around two and a half thousand rubles a month. That's about $7 at current rates, a little less than the average salary, but the rise in prices far outstrips wage increases. The freeing of prices has put more goods on the shelves of her local state-owned food store, but the long lines are still there, in part forced by something that hasn't changed here, the Russian system of standing in line. To buy chicken, Nina has to stand in line once to place her order, then a second time to pay for it, and then a third time to collect the chickens she wants, and once the shopping's done, she's unimpressed with the purchases she's made.

NINA VASSILIEV: [speaking through interpreter] Life is hard, of course. Our wages are miserable and their prices have gone up. I'd like to live better, but there's absolutely nothing in the stores, only a small range of products of poor quality.

MR. MARX: But at some stores in Moscow, there is a wide range of products of good quality available, and it's at those stores that Dmitri Gavrilov's wife, Svetlana, spends her money. Rubles are no good here. Only dollars, pounds or yen will buy the food within. For those earning foreign currency, there's a big selection of imported products and an imported way to buy them too. Svetlana simply picks the goods she wants and then pays for them. She says she enjoys shopping here and believes that the power of the dollar will always dwarf that of the ruble.

SVETLANA GAVRILOV: When you have dollars, you know that you have always real money and you know that if a ruble's now -- if prices in rubles go up, you know that you can change dollars for rubles.

MR. MARX: And with the dollars they save, Dmitri and Svetlana Gavrilov want to build a home. They've bought a small plot of land in a forest outside Moscow. It cost them $2,000, and they're drawing up plans for their first privately owned house. They're not the only ones building. Some of their friends are as well. In the suburbs outside Moscow, new foundations are being laid as those with enough money plan ahead for the future. Left behind in Moscow, Nina Vassiliev and millions like her. She lives with her family in a state-owned apartment which they share with another young couple. They'd like a place to themselves, but the government has fewer apartments to allocate as many are sold off to those with money. Sergei Vassiliev says he has no hope of moving and no chance to buy a home either.

SERGEI VASSILIEV, Construction Worker: [speaking through interpreter] Our standard of living has gone down by 10 times, I think. And it's not as if we were living all that well before. We used to go and take time off, enjoy ourselves, have fun. Now we do that less. We stay at home more.

MR. MARX: The Vassilievs say they are the poorest in Russia today. They say they feel sorry for the old people who try to keep going with nothing but a state pension to support them. They don't trust the government reforms and don't believe any fundamental change has taken place in Russian society. Back on Gorki Street at the end of each day, the free market continues to operate for those window shopping for a Chevrolet, as well as for those seeking garlic and cigarettes, two sides of the same coin on two sides of the same street; the Russian economy and Russian society in transition.

MR. MacNeil: We have four views now on the economic and political situation inside Russia. Jeffrey Sachs is an economist at Harvard University, and an adviser to the Russian government. He recently returned from a trip to Moscow and joins us from Boston. Danielle Downing is a director with Koury Capital Group, a private investment firm active in Eastern Europe and Russia. From 1990 to '92 she helped found the Moscow Commodities Exchange. Stephen Cohen is a professor of political science at Princeton University, the author of many books and articles on the former Soviet Union, and Nina Belyaeva, a Moscow attorney and president of the Interlegal Research Center, an independent think tank in Russia. She's currently a fellow at the Johns-Hopkins Institute for Policy Studies in Baltimore. Jeffrey Sachs, if what we've just seen is a little microcosm of the economic reform effort in Russia, what is the large picture, in your view?

JEFFREY SACHS, Economist: Well, one theme that ran through that whole segment was money, the ruble and the dollar, and the fact that those living in the ruble economy are living with tremendous unpredictability. The fact is Russia is falling into hyperinflation, not because of the economic reforms, but because the reactionary forces in the country ever since April or May have been fighting back the economic reforms and have basically undone the macroeconomic stabilization, the same set of policies that was successful in Poland and Czechoslovakia, in getting things turned around. So the real tragedy is that the, underneath all of this is a destruction of the value of the currency because of hyperinflation, and that's coming because of pressures from the old military industrial complex which have demanded ever larger printing of money to keep the old military industrial complex operating. So the real actor in the drama isn't seen in that segment. Of course, the people are anxious, confused, weary. It's a terribly unsatisfactory, very unhappy situation.

MR. MacNeil: So the reactionary forces you talk about would be represented in a small way by the director of that milk plant who, who said the reforms are too fast, and the privatization effort is, is not serious and so on?

MR. SACHS: Of course, that gives a little bit of the feel of it, but the real military industrial complex isn't creameries and dairies.

MR. MacNeil: No.

MR. SACHS: It's tank factories, missile plants, aircraft factories, huge metallurgical facilities, and those forces have successfully undone the stabilization for the last few months. And it's leading to havoc in the ruble. If it doesn't get ended soon, Russia will have a hyperinflation, and I think there will be devastating consequences.

MR. MacNeil: Hyperinflation is just inflation so out of control that it goes up, as it has often done in Latin America. How much is it now, the inflation rate?

MR. SACHS: The inflation right now is after falling down to about 10 percent a month, which is extraordinary of course, it's risen back to about 30 percent per month now, and it's accelerating. Hyperinflation is defined as inflation of 50 percent per month or more which accumulates in a year to 13,000 percent. So they're really on the verge of an explosion, and this is because the real battle over reform isn't over. It wasn't won decisively by the reformers. Some of the people in the segment are absolutely correct. The struggle continues. The problem is not the reform, however. The problem is really the, the failure to carry through the reform starting back in May and June.

MR. MacNeil: How threatened is the whole reform effort with, with collapse, and with being taken over by the reactionary forces, stopped by them?

MR. SACHS: I think it's seriously threatened right now. I think it's a matter of weeks or a month or two unless there's a change of policy. To stop a hyperinflation throughout history has required two things: one, tough internal policies of the kind that Czechoslovakia or Poland carried out; and also international support. The domestic policies have really been weakened seriously in recent months. The international support never materialized beyond the rhetoric, and so the aid that was promised never really came, and that's why things are floundering in such a desperate situation right now.

MR. MacNeil: Well, I'm going to come back to what you think should be done about it in a moment. Let me turn to Danielle Downing. Do you agree with that description that the economic reform effort is now threatened with collapse and pretty quickly?

DANIELLE DOWNING, Investment Analyst: I think it's threatened, but I don't think it's going to collapse, because other than in Moscow, there are other pockets of reform that are happening. And we focus too much on Moscow. I think the West has seen that, that we misjudged what was happening when Gorbachev was around. And there are reformers at the regional level that we have to look at, and we have to also support those. So even if Gadar and Yeltsin's reform group doesn't succeed, there are other people in Omsk, in Nizhny Novgorod, in Sahaline, who are promoting reform right now.

MR. MacNeil: Well, what is the evidence that they are more successful than the people in Moscow?

MS. DOWNING: Let's take Nizhny Novgorod. They did a concrete project which is to privatize retail stores, shops, so all that all milk that is produced can be sold somewhere. And when people have assets and they feel that they're owners of something, whether it be an apartment, a dacha, a store, then there is an interest group -- it's the middle class that's emerging. And those I think are the ones who will be successful.

MR. MacNeil: Do you agree with Mr. Sachs, Prof. Sachs, that the slowing down of the reform effort is the fault of the former people who ran the heavy industry and the military industrial complex, and they have, in effect, insisted on sucking up so much of the investment? Do you agree with his diagnosis?

MS. DOWNING: I totally agree with that. I think that the people who run the state enterprises now are the old guard. It's the ones who are Stalinist philosophy even, and they're not the young people, the ones who have new ideas, who have tasted what a market is, which is from selling shoes on the street to selling cars. And if they can start phasing into some of the real industries, then they will be able to restructure and manage them and compete.

MR. MacNeil: What do you see happening that is going to stop the reform effort from grinding to a halt under those influences?

MS. DOWNING: I don't think the reform effort will grind to a halt. I think there is already a small class, not enormous but of entrepreneurs who have a vested interest in pursuing market economy, and they will continue to push in little efforts, whether it be a small shop. It's not going to be a militarycomplex. But that's not where the economy is going to change drastically in the very near future.

MR. SACHS: Robin.

MR. MacNeil: Yes.

MR. SACHS: I wonder if I could make a comment. I agree completely that all over the country on the, on the ground level, there's tremendous change and very favorable, and a lot of entrepreneurship. The problem is that all of this can get devastated by hyperinflation, so it's not what's happening on Gorki Street literally that counts. It's what's happening in terms of providing a stable money, which only can be done at the center unfortunately. And here's where the great devastation is, so I completely agree with what Danielle Downing is saying. There's tremendous change all over the country, very very positive. I'm just worried that it could get overrun by financial collapse.

MR. MacNeil: What is your view, Ms. Downing, of the danger of hyperinflation?

MS. DOWNING: I think hyperinflation is an enormous problem and Prof. Sachs, who's the economist, knows the effects. He's looked at it in other countries, however, we should emphasize that small sector that's moving forward, and the young woman who was in the milk factory, if she has a vested interest, if she's given her apartment or can use her voucher to buy her apartment, for example, all of a sudden she believes that a market economy will work. She's owner of something.

MR. MacNeil: In other words, that piece of paper that she said she hasn't yet received but others have, that she said will just be a piece of paper, it actually could buy her apartment, or --

MS. DOWNING: That hasn't happened yet, but if that piece of paper could buy real assets, not just an equity stake in her enterprise which she doesn't feel is tangible, but if she can use that to buy an asset, for example, it needs to be noted that there was a truck conglomerate that they used those vouchers to buy trucks, and people could see how that is a tangible relationship to their paper.

MR. MacNeil: Okay. Let's turn it around now for a moment to the, the political view of this. We've been looking at it economically. Steve Cohen, describe how -- with this background -- describe how you see the situation politically.

STEPHEN COHEN, Political Scientist: I can't do it with this background because the Russia that Prof. Sachs has related to us is not the Russia that I've studied for 30 years. It's a fiction; it's a myth. The problem is not Russian reactionaries. God knows, there are plenty of Russian reactionaries, legions of them. The problem is the shock therapy leap to capitalism unless we make Russia, unless we make America and Russian program that the International Monetary Fund, the Bush administration, and Prof. Sachs have persuaded the Yeltsin government to undertake. It is ill-suited for Russia. It will not work. It is driving an economy, and particularly Russia's 20th century achievement, its industrial infrastructure, into a nosediving crash. It is causing enormous social pain on ordinary people, a pain that has made in America written all over it. The problem is not a reactionary. The problem is Prof. Sach's program. And, in fact, I would guess that as we talk, President Yeltsin is abandoning that program, and its Russian architect, Prof. Sach's partner in Russia, Prime Minister Gadar.

MR. MacNeil: Do you see the -- this economic reform effort threatening the progress towards democracy in the Soviet Union?

MR. COHEN: Not only threatening it, but condemning it to failure and not only in my lifetime but in the lifetime of my children. We simply cannot persuade people who have never experienced democracy to move toward democracy, to be tolerant, to abide by election results, to allow elected officials to run their full term if during that process you plunge them, including the Russian middle class, way below the poverty line. The point I want to make is that the language we use in this country and the language that Prof. Sachs has introduced in his program is detrimental to serious thinking. To say that anyone in Russia who opposes his program is a reactionary to the false statement. Many of the people whom Democrats in this country, many of the people in Yeltsin's own care, many of the liberal leaders, of the Russian parliament, many liberal editors now no longer believe in this program. At the same time there is an alternative. There are alternatives, other ways. Russia has to find its own way. It can't do it the American way.

MR. MacNeil: We'll come to alternatives in a moment. I just want to ask you: What does it mean for the United States if this effort towards democracy does collapse?

MR. COHEN: Well, I would not formulate it the way it is sometimes formulated. For example, Amb. Strauss, who's just retired from his post in Moscow, believes that, if I understand him correctly, I don't want to put words in his mouth, but as I understood his speech, that the choice is between democracy and fascism. That is not the choice. There is an enormous political turf, particularly in Russia, between liberal democracy and fascism. But if there is a complete collapse of the reform process, then that will be the end of the peace dividend in the United States because there will be no disarmament in this country, no reduction in the defense budget, but, again, there is an alternative.

MR. MacNeil: Come to alternatives. Nina Belyaeva, how do you see the reform situation? Do you see democracy threatened by the very economic reform program that is supposed to sustain it, as Mr. Cohen does?

NINA BELYAEVA, Russian Attorney: I would like first to define what do we mean by democracy, what do we mean by democracy speaking about transformation in Russia, and what do we mean by the reform. And here I would agree with Steve Cohen that many, there are reasons why reform is stumbling. Just blaming everything for reactionary forces is not right. And also speaking about directors as those, you know, hardliners and people who have only Stalinist mentality also is not right. We have a lot of associations of directors who are also for reform, and very energetically moving privatization forward. So speaking about democracy and market reform, how did these two come together? I think they do come together very closely, because if we have reform succeeded in a sense that private entrepreneurs, which we now have plenty of, and I also agree with Danielle Downing that there are a lot of people who willingly reformed just outside of Moscow and not only in the government but private businesses, those who, you know, develop it all around the country. And if we have the reform process succeed in allowing those people to do their business, that this is the process that makes the foundation for democracy, because only the middle class, only people who have individual private property can make stability for the country that's needed for developing democratic process. And the crucial year will come in '94, when we will have another independent election. And we do have political parties developing and they all identify themselves through the process of the market reform and the privatization. So people will make their choices on ways to go to the market, the mechanisms to be used, the level of government involvement, the level of --

MR. MacNeil: Do you --

MS. BELYAEVA: -- programs --

MR. MacNeil: Excuse me interrupting -- do you, on a scale of the gloomiest assessments here to the more optimistic, where do you stand? Do you see it all in danger of collapsing, the reform effort, and the step toward democracy, or are you more hopeful?

MS. BELYAEVA: Well, I think what has happened is the reform process cannot fail at all, regardless of whether Gadar will stay as the prime minister and whether his government will stay, because I think the reform has already gone too far just to collapse altogether, because it cannot be helped by any reactionary forces. There is no such force who can take sort of the country over and be responsible for what is happening in the country.

MR. MacNeil: Mr. Sachs, we have a slight disagreement here. Steve Cohen says it's your program that is running the reform movement into the ground. You heard what his argument was, that it wasn't suited to the Russian situation.

MR. SACHS: Well, I was, I was surprised and taken aback by the remarks. I don't know what he found in 30 years of studying Russia, but he apparently didn't notice that at the end of last year the budget deficit reached 25 percent of GNP, and that was fueling a hyperinflation, that if there weren't strong measures taken to eliminate that, the country would be profoundly destabilized, and all of the trading system would break down as it was at the end of last year. After a great deal of progress in the first half of this year, what has happened since July is another explosion of the money supply. I'm not talking about reactionaries taking over the country. I'm talking about the reactionary forces leading to financial chaos. That's a very different thing. Since July 1st, the ruble money supply has increased by more than doubling, far more money is now rising at about 30 to 50 percent per month. And it may be all fine and good to point to entrepreneurship and so forth. Of course, I believe deeply in what the others are saying, but there's a great deal of activity, that the old order is fundamentally broken down. But I'm trying to pinpoint something more precise, and that is that a profound destabilization is at work right now for very identifiable reasons. One can look to where the credits are going. These are special credits to the heavy industrial sector. No one's calling names. I'm talking about where the money is going from the central bank to the industry, and the amount of money that is being printed right now is of a hyperinflationary extent, and this is going to cause grave danger to the country.

MR. MacNeil: Let me go back to Mr. Cohen for a moment. You don't quarrel about the inflation point, I take it?

MR. COHEN: No.

MR. MacNeil: Well, how do you respond to the situation that Mr. Sachs described a year ago and that needed the kind of medicine he says it needed.

MR. COHEN: Let's make it concrete.

MR. MacNeil: And that has worked under his prescription, has worked to some degree in Poland.

MR. COHEN: I would not agree with that statement, but let the - -

MR. MacNeil: You would not.

MR. COHEN: -- let the Polish experts --

MR. MacNeil: Okay.

MR. COHEN: -- there's a lot of weight of opinion among economists and experts on Poland that the success he claims in Poland does not exist.

MR. MacNeil: I see.

MR. COHEN: That it's --

MR. SACHS: Mr. Cohen --

MR. COHEN: Let's go back to Russia.

MR. SACHS: Fortunately, the Polish people support a government strongly pursuing these reforms.

MR. COHEN: The Polish people have several governments.

MR. SACHS: Yes.

MR. COHEN: Well, let's go back to Russia. What are we talking about? Let's put it in terms not of ruble supply and money supply.

MR. SACHS: Why? That's the point though.

MR. COHEN: Well, I know you think that's the point, but --

MR. MacNeil: But, Mr. Sachs, just let him finish and then I'll come back to you.

MR. SACHS: What's at stake is this. 90 percent of the Russian economy is still in the hands of the state. Large parts of it have to be gotten out of the hands of the state into the private sector, doing the kind of the things that Ms. Downing is doing. I support that entirely. I believe it's correct. But the shock therapy program is essentially destroying the industrial infrastructure, which we call, Mr. Sachs calls reactionary, military, industrial, but it is what Russia has achieved in the 20th century. It makes 20th century. It makes baby formula. It makes school books. It makes wheels for automobiles. It makes gasoline. It makes plastic. It makes toothbrushes. It makes medicine. It makes vitamins for elderly people. It makes everything that's necessary to sustain a Russian nation. To destroy that in the name of a monetary dogma, that this is the way it is in America or in the IMF, therefore, it must be for Russia, first of all is arrogant. Secondly, it excludes the possibility of another way that won't plunge the country into social disaster, unemployment, maybe even rebellion, and bring reactionary forces, real ones, not the ones of his imagination to power.

MR. MacNeil: Mr. Sachs.

MR. SACHS: It's just a -- such a caricature. No one is destroying these factories. What is happening is very straightforward. Under the militarized economy Russia produced 160 million metric tons of steel, while the United States produced 90. Despite the fact that we're ten times larger, they put all of their resources into heavy industry, not into the baby food factories that Mr. Cohen talks about, and no one's systematically destroying the baby food factories or the textile factories. What happens is when you subject an economy like this to financial discipline, they can't sustain the military sector, because all of the resources were there, but there are no customers for it. So what happens is that the old guard pressures for huge subsidies to keep their influence, prestige, and factories going, again, not the baby food factories. Now, in Poland and Hungary and Czechoslovakia that old guard couldn't win the vote, couldn't win the support, and what the economies there have done is transform from that kind of heavy industry to consumer goods, light industry and services. In Russia, the old guard is fighting an incredible battle right now, and as a result of this, since July, there has been an explosion of credit which very temporarily keeps this heavy industry going, but more profoundly takes away all of the purchasing power from the pensioners, from everybody on fixed incomes. The joke is exactly the reverse of what Mr. Cohen says, and please, don't call me arrogant in this. I resent that. I'm trying to say that the pressures from the old guard are what is taking away the sustenance of all of the rest of the economy. And it's an old story in the reforms of the last few years. This battle has been going on. It's just now going on a different guise, because the monetary situation is in the open. But these are all facts that are clear on the table. One can look at the money supply changes month to month, and there's been a dramatic destabilization since July.

MR. MacNeil: Let's -- if we can't agree on the diagnosis, let's move on and use the rest of our time to discuss what each of you think needs to be right now, and how the United States could contribute to that, but let's go first to Ms. Downing. What do you think needs to be done right now to -- for the West or the United States to help the Soviets -- to help the former Soviet people in this situation?

MS. DOWNING: I think the U.S. should support economic reform in whatever capacity it can. What I mean is the Russian government should show the discipline that Jeffrey Sachs is talking about to prove that they are trying to control their old economy, that they should emphasize those industries that are expert-oriented. If they support and get rid -- support export industries and get rid of all the bureaucracy, the export licenses that they are imposing on the oil industry, the commodity industry, they will generate their own hard currency to support their economy and to go through this phase of transition. Look at China. They did that. They tried to emphasize any export they could get and what has happened, they have a trade surplus. That would relieve our burden of having to give them credit, and they will be able to create their own hard currency reserve. Another area is to support that emerging entrepreneur, that emerging private sector, the Russian government should push to privatize much of the retail stores, the restaurants, the small shops, just like Poland did. 97 percent of small shops and retail distribution in Poland is in private hands. That will create a middle class in Russia. And finally, they should -- we should help the Russians in whatever way, and I don't see it as direct aid, but for instance, it's sort of technical assistance, not necessarily always in Moscow, but in the regions. Those reformers that we see, we should help them to create a clearing system to make transfer of payments easier, to create a more strong, central bank. Those are the type of areas that we could assist.

MR. MacNeil: Ms. Belyaeva, what do you think needs to be done to help the situation at the moment, particularly what the United States could do?

MS. BELYAEVA: Can I please start with analysis, because it was a very interesting discussion in which I want to add first of all that we have to understand the reform that was undertaken did not work. And this is a fact. Whomever we blame for that, the policy for monetary fund or reactionaries, it doesn't work, and it is probably not anybody's specific fault. But what is applicable to Poland and Czechoslovakia does not work for the Soviet Union, for such a huge country, and for the amount of state industry that was owned by state. And what, what has to be done in the transformation is to support these new forces. And what America has to do is not to focus on people in the government, because everybody says here that a government has to show its discipline, has to show it can combat inflation; it cannot. The government does not have a popular base of support. The government does not, you know, rest its policy on any political party or any substantial political force to support it. So I think this government party generally will go, if not now but soon. But the question is that it is not the end of reform. The reform is going on. And it has to be seen as a general process for the country, not just the policies taken by government.

MR. MacNeil: All right.

MS. BELYAEVA: And what also has to be supported is the political transformation. I think that while inflation goes on, that Gadar really does not have an influence on the money issue because Gos Bank is -- speaks directly to parliament and Gadar can only be in control because the parliament voted directly on getting -- making more investments in the state enterprises.

MR. MacNeil: I'm going to have to ask you in the interest of time to keep your prescription a bit short, and move on to, to Jeffrey Sachs. What do you think needs to be done, Mr. Sachs?

MR. SACHS: Well, history teaches that countries that fall into hyperinflation can end up with devastation. Wymer, Germany is the most famous example, but unfortunately history tells us about many other cases of civil war, violence, and unrest. I don't think that it's right to say that Russia is so different. It turns out that if you double the money supply in Russia, the currency will lose half its value roughly and prices will double as well. It's amazing and perhaps to some, but the basic monetary facts of life are very sadly true there. And, therefore, while it's easy to say that this is all myth or that it has failed and now let's try something else, there's a very basic task at hand, and that is to head off financial collapse. The reform did not fail. It wasn't sustained. It could be sustained again. History has also shown that when countries try and slip, if they try again, they can get it right. And this I think is the most important thing for Russia, is to reinforce its internal discipline to try to get that hyperinflationary, monetary policy under control, and to recognize that what's done in the name of the people in giving these vast sums to the heavy industry is exactly taking from the people through the complete wastage of their purchasing power, the dissipation of their purchasing power through inflation.

MR. MacNeil: And what is the U.S. role briefly in sustaining this reform, as you see it?

MR. SACHS: Again, there's a century of experience that you need internal financial and monetary discipline and international support to help with small business, to help finance military conversion, to help finance the oil and gas sector, to help with the social safety net, so that people affected by the dislocations, which are inevitable no matter what, have some help, and finally to help stabilize the currency. So the package of measures we know from dozens of cases in history and even the Eastern European cases where the relevance is very direct of the range of policies that should be pursued. But first and foremost, it depends on the internal discipline of the Russian people and Russian government, itself, but then backed up with the financial support in these various areas.

MR. MacNeil: Thank you. Steve Cohen, what do you think needs to be done?

MR. COHEN: By the United States?

MR. MacNeil: Well, needs to be done and by the United States.

MR. COHEN: Well, I don't think that we should tell the Russians what needs to be done. I think I know, but I don't feel it's my business to be telling Russians what they do. They've got plenty of very good economists, people who understand the monetary system, a market, and all the rest, just as well as Prof. Sachs, certainly better than I. What I'd like to see the United States do is speak to the new Russia, post-communist Russia in a different tone of voice. We support you as best we can, so long as you move in the direction of markets, so long as you move in the direction of more democracy. But we Americans do not have a blueprint for your terribly complex problems. There may be, as Prof. Sachs says, a century of monetary experience, but there is also 1,000 years of Russian history. We would say to this Russian government or the post-Yeltsin government, do it your way, do it your way, so long as the direction and the movement is there, we will be supportive.

MR. MacNeil: We have to end it there. Thank you very much, Jeffrey Sachs, Nina Belyaeva, and Danielle Downing, Steve Cohen. FOCUS - SOFT SELL

MR. LEHRER: Finally tonight, some new wisdom from Detroit about selling and building new cars. It comes from the Chrysler Corporation, where a revised sales approach may be crucial to the No. 3 automaker's survival. Fred De Sam Lazaro of public station KCTA at Minneapolis-St. Paul reports from Detroit.

LEE IACOCCA: I think anybody that goes out wants to go out with a bang.

MR. LAZARO: The ball hasn't landed in the bleachers yet, but Lee Iacocca is using the baseball analogy to declare success with these new LH series cars.

LEE IACOCCA: You know, I got to tell you when it's your last turn at bat, it sure is nice to hit a home run.

MR. LAZARO: For Chrysler's sake he'd better be right. If these cars fail in the market place, many experts feel the company may soon follow its retiring chairman into history. Iacocca, himself, has no doubts.

LEE IACOCCA, Chairman, Chrysler Corporation: I think it's a brilliant car. It's a great car really. Get in it and drive it.

MR. LAZARO: Even allowing for the semantic inflation that's normal in the car business, most experts are praising Chrysler's new entries. From what he's seen so far, Leon Mandel, publisher of Autoweek Magazine, gives the LH car an A+, right up there, he says, among the best U.S. and Japanese competitors.

LEON MANDEL, Publisher, Autoweek Magazine: I must say that almost everything about that car astonished me. I was -- I was amazed how big it was inside. And I was surprised how agile it was, despite its being large, and I was impressed with its quickness and with its stability and with its sure-footedness.

MR. LAZARO: Yet, for all its technical virtue, success on the sales floor is not guaranteed. The problem is that showroom itself.

LEON MANDEL: You can make the best car in the world, and you can be sure that it's manufactured to the closest tolerances, and you can design it and deliver it to the dealer at the right invoice price, but if the buyer walks into the showroom and experiences the horror story that he anticipates and that, indeed, the American retail car business has given him some reason to anticipate, the experience and, therefore, the car turns to ashes in his mouth.

MR. LAZARO: Most car salesmen have terrible reputations. Chrysler's own surveys show many Americans refer a root canal operation to the experience of buying a car.

LEE IACOCCA: This requires -- I hate to use the word cultural change -- but a cultural change at the dealership.

MR. LAZARO: So as part of its LH introduction, Chrysler is trying to bring about that change with a $25 million program called Customer One.

TEACHER: Listen to your customers.

MR. LAZARO: It was developed by studying firms noted for good customer service.

LEE IACOCCA: I kiddingly said to a dealer group in addressing them, it's a hell of a note for me to have to spend 25 million bucks to show you how to be nice to people.

TEACHER: In general, what do the public think about salespeople? Dishonest, crooks, scum.

MR. LAZARO: In the Customer One program, dealers are encouraged to identify then change those traits or methods that feed into their reputations. Prominent among them is pressuring a customer to buy today. It's a tactic that salesman Eric Williams says becomes part of a vicious cycle.

ERIC WILLIAMS, Chrysler Salesman: You either sell them while they're there, because they're never going to be back, because the way you're going to handle a transaction is going to be so negative and almost so abusive to the customer that either you sell them, you sell 'em today or you're not going to sell 'em at all.

TEACHER: Okay. This is the bottom line right here. Business goes where it's wanted. Business stays where? Where it's appreciated.

MR. LAZARO: Training sessions emphasize foregoing the fast sale in favor of return business.

TEACHER: What could you do to delight me? I'm your customer. Delight me.

SALESMAN: I pick the customer's car up at night when I get off work, leave my car. The next night I take theirs back to them, and keep going like that.

TEACHER: That's delight. Thanks. Good idea. Going above and beyond, going the extra mile, set yourself apart from everything else.

MR. LAZARO: Salespeople are urged to sell customers on a larger package, good, respectful service along with the car, also to know more about the car than just the monthly payments on it.

SPOKESMAN: Basically, anything go wrong electrical with the car, it's real simple to pop this off, fidget around a little bit, takes a tedious hour process down to ten or fifteen minutes for even most un-car knowledgeable people like myself.

WOMAN: Good job. Thanks for group three. Let's give 'em a hand.

MR. LAZARO: Auto industry officials say customers are increasingly knowledgeable today about what's available in the market. Most cars are technically competent and reliable, thanks to stiff competition, and Chrysler Sales Vice President Ted Cunningham says that leaves only service to distinguish among them.

TED CUNNINGHAM, Vice President, Sales: So you're going to see, as we call it, a much kinder and gentler approach by the salesmen, not an immediate discussion of price. We must sell our products on its merits first. We are very hopeful that many of the dealers are going to be going into one price selling.

MR. LAZARO: That no haggle, one price approach has been adopted by an increasing number of dealers, especially those in new brands, like Honda's Accura and GM's Saturn, but many Chrysler dealers say for them bargaining will continue to be a way of life. For one thing, their showrooms are far more numerous so they must compete more with each other and with other makes. Also, salesmen say consumers increasingly come prepared to bargain.

BILL KOLATH, Chrysler Salesman: You know, you can go to any store and get a book on the dealer's prices. You know, people come to my store and tell me exactly what we pay for the car, you know. You don't have that. They know interest rates. They know how they want to finance it, you know. I mean, it's a totally -- the things that happened in the past, the reason we got our reputation, it would be impossible to do nowadays.

SPOKESMAN: There's the driver's side air bag but there's also a standard passenger side air bag.

MR. LAZARO: One thing that is now possible is Chrysler dealers can say they have a good car and mean it, not always true of the LH's predecessors from the Chrysler Corporation.

LEON MANDEL: It's had pretty lousy cars for the last 20 years or so. They've improved, they've improved in quality, maybe not in design, but they've improved in build quality, but they've been pretty lousy cars.

MR. LAZARO: Mandel and many experts say the new Chrysler cars, on the other hand, have attained a level of quality unparalleled inDetroit, the result, they say, of a Japanese style approach to developing cars.

SPOKESMAN: As soon as you put this in use with the vehicle, crank the engine perhaps --

MR. LAZARO: In reversing the traditional top down Detroit management style, engineers, designers, even assembly line workers and outside suppliers were brought in early on the team. Chrysler officials say this allowed for quicker problem detection, much less bureaucracy, and faster work.

THOMAS GALE, Vice President, Design: We had to try to empower people further down in the organization, and what inherently happens is I think we get better decisions, people that are closer to it, that are closer to the facts.

GLENN GARDNER, Design Team Leader: So we've done a lot of things to assure that this car is not the traditional stereotype of Detroit hardware that is let the customer prove it out. This is not let the customer prove it out. We're confident the car has already proven out for the customer.

MR. LAZARO: Chrysler officials say it's essential to have a good product to change the stereotype of car salesmen. Having a good car also makes good service possible and that, says Lee Iacocca, is a big market opportunity.

LEE IACOCCA: Because nobody has really carved this out and owned it. Everybody's been lousy. I mean, all over the United States of America, on servicing product, has been pretty bad. We hate to admit it, but the last 20 years there has not been enough attention to service, per se, or maybe quality, because after all, service depends that the car is built right to start with. If a guy's got to come back six times because there's some kind of a design error, you're never going to win that customer over just giving him good service.

LEE IACOCCA: [commercial] It's going to change the way cars are designed from now on.

MR. LAZARO: Iacocca is credited with some of the most significant American automobiles in recent history like the Mustang and the minivan, but for consumers, his far more enduring legacy could be a civilized car buying experience. RECAP

MR. LEHRER: Again, the major stories of this Tuesday, President Bush fired the State Department official accused of searching the passport files of President-elect Clinton and his mother. There were also reports officials looked through the passport records of independent presidential candidate Ross Perot. And tonight, a Pentagon spokesman said a sailor who was discharged from the Navy for being a homosexual would be reinstated. The decision came after a federal judge ordered that reinstatement. Good night, Robin.

MR. MacNeil: Good night, Jim. That's the NewsHour tonight. Join us tomorrow for an in-depth look at the economy that Bill Clinton will inherit. I'm Robert MacNeil. Good night.