(FORTUNE Magazine) – IN THE BLIZZARD of commentary about the recent elevation of Mikhail Gorbachev, now general secretary of the Soviet Communist Party, the word ''reform'' keeps recurring. Many commentators are asking whether Gorbachev will push for economic reform--for changes that could invigorate the sick Soviet economy --and if so whether he will prevail over the bureaucrats and die-hard Stalinists who like things the way they are. The implication of the questions is that with better management the Soviet system might be made to work a lot better; however, the commentary tends to be a bit blurry about the meaning of reform in the Soviet context. Sometimes it seems to be pointing to more discipline: the Party will crack down on absenteeism, black markets, and corruption generally. But some commentators seem to be saying almost the opposite: the planning will be less heavy-handed, more decentralized, and more reliant on market incentives. Every Soviet leader, including Yuri Andropov and Konstantin Chernenko, has supported reforms of one kind or another, and both varieties of reform --discipline and decentralization--have been on display to some extent in recent years. Yet it is ultimately beyond belief that better management can put the Soviet economy back onto a solid growth trajectory. The rot is too pervasive, the economy's problems too systemic. ''The Soviet Union has more reforms than any other country in the world,'' observes Sovietologist Seweryn Bialer of Columbia University, ''but they don't change the system. They're absorbed by the system.'' Gorbachev confronts a kind of gridlock in which all imaginable solutions to Soviet economic problems instantly run into other intractable problems. The country has a labor shortage. The effects of the labor shortage are magnified by tensions among the country's nationalities, which make it hard to move workers from one area to another. The Soviet Union also has increasing energy and raw material shortages. It has an outmoded industrial plant. Its notorious problems with agriculture are compounded by inadequate transportation, refrigeration, and storage facilities. It has an unacknowledged but pernicious inflation. Until quite recently, the system delivered solid growth. Even after extensive downward adjustment of the official Soviet figures, Western analysts agreed that the economy was growing at about 5% a year during the Sixties and averaged close to 4% during most of the Seventies. The theme of growth was, in fact, a major legitimizing idea sustaining the Soviet dictatorship in those years: until the mid-Seventies, you could look backward and tell yourself that the system, for all its brutality, was raising living standards and growing more rapidly than the capitalist economies with which it was ideologically competing. The Communist Party could claim to have taken a backward agrarian society and created the world's second-largest economy. In 1975 Soviet GNP was about 60% of U.S. GNP (up from perhaps 40% in the mid-Fifties). But in the mid-Seventies the lines crossed. Soviet growth slowed dramatically, and most estimates put the economy today at only around half the size of the $3.8 trillion U.S. economy. The U.S.S.R.'s overall growth rate was only about 2% last year, according to the CIA, and the regime could have trouble sustaining even that pace during the remainder of the Eighties. Average living standards have essentially stopped rising. Seweryn Bialer estimates that the Soviet standard is about where Italy's was in 1947 or 1948. Although the Soviet economic slowdown is relatively recent, there is no reason to think of it as temporary or cyclical. In capitalist economies, recessions generally do imply future growth, as unused resources are again put to work. But the current Soviet slowdown essentially reflects a shortage of resources--a shortage worsened by the bottlenecks guaranteed to develop in centrally planned economies. During the booming Brezhnev years, the system's inefficiencies were offset by its access to cheap and abundant resources, beginning with labor. Like many Third World countries, the Soviet Union registered huge gains in those years simply by virtue of the fact that millions of workers were moving out of low- productivity agriculture and into high-productivity industry. (Those terms are of course relative: Soviet workers in manufacturing are only about 55% as productive as their U.S. counterparts. In agriculture the ratio is about 10%.) The days of abundant labor have ended. The growth of the working-age population has been declining steadily since the late Seventies, and even before then the ruralurban shift had begun to slow dramatically. A maddening problem for Soviet planners is that their European population, which is closest to the existing industrial plant, may actually be declining. Additions to the labor force must now come from the Asian and Caucasian republics, but the frictions between their populations and the Russians make it difficult to move many of them into the European industrial areas. The obvious alternative, which is to build a lot of factories in, say, Uzbekistan, runs into other problems. These begin with the reluctance of the Russians who control capital- spending decisions in the Soviet Union to invest their scarce resources in areas of the country not entirely friendly to the regime. The regime has a somewhat parallel problem with respect to mineral resources. The mines and oil wells nearest the industrial base are running out. Mining coal in the readily accessible Donets Basin in the Ukraine is becoming uneconomic; more and more Soviet coal now comes from Kazakhstan and southern Siberia. Today Soviet oil comes increasingly from desolate areas of Siberia, where the investment cost of producing a barrel of the stuff is five times the level in Azerbaijan. The Soviet Union is still the world's largest producer of oil (12 million barrels a day), but in 1984, for the first time since World War II, production declined. The decline was clearly related to the rising cost of producing oil. Some Sovietologists believe that these costs led to a decision under Andropov to limit investment while trying to get more mileage out of available supplies via conservation. If that was in fact the strategy, it has failed; the Soviet economy simply does not generate incentives to conserve energy. An analysis of Soviet consumption published a few years ago by the congressional Joint Economic Committee aptly characterized the country's industrial consumers of energy as ''quantity takers''--passive recipients of whatever the central planners doled out--rather than as ''price takers'' relating their needs to market signals. The regime's oil miseries are a serious matter and have obviously been magnified by the collapse in energy prices. The Soviet Union depends heavily on energy exports to generate hard currency and depends heavily on hard currency to further its own development. A recent Wall Street Journal article by Henry S. Rowen and Vladimir Treml notes that about 35% of new machinery installed in the Soviet Union comes from abroad, with half coming from the West and half from Eastern bloc allies. In computer technology, the U.S.S.R. relies heavily on imports, and there have been intimations in recent months that the regime wants to begin acquiring personal computers from the U.S. Any squeeze on the supply of hard currency has to be viewed as one more limit on all such prospects. THE SLOWDOWN in Soviet economic growth is a major reason for the country's surging inflation. The media haven't said much about this aspect of the U.S.S.R.'s economic problems, and, of course, inflation doesn't show up much in the regime's published price data. However, a number of Sovietologists have been studying the phenomenon in recent years, and there is no doubt that they are onto something interesting. What basically happened, according to Gregory Grossman of the University of California at Berkeley, is that beginning around 1979 the Soviet banking system found itself unexpectedly obliged to deliver cash transfusions to a sizable number of enterprises. Characteristically, they needed the money because they were in a cash bind: in the suddenly softer economy they were not selling the finished goods that would generate revenues, but in the Soviet tradition, the decline in sales did not lead them to reduce employment or cut back on acquisition of supplies. The substantial increases in loans soon enough translated into increases in money in circulation, which then found itself chasing after scarce goods. Grossman argues persuasively that this monetary explosion has created extensive redistribution of income, along with a lot of social tensions. The money became an engine driving the underground economy and contributed substantially to the suborning and corruption of Soviet officialdom. Officials, or for that matter clerks, whose jobs gave them access to state property found that they had new opportunities to make themselves rich by diverting the goods to the black markets. ''The biggest winners,'' Grossman observes, ''were the bosses.'' Another sizable group of winners in the new inflation were the peasants, who found that the food they sold in private markets (many of which are legal) was suddenly commanding much higher prices. Typical loser: a babushka living on her late husband's pension. This Soviet inflation problem is not apt to disappear soon. Grossman believes that the system has no good way of mopping up the torrent of money it has been creating. And since the bosses--party leaders, government administrators, and plant managers--are among the beneficiaries of the inflation, it will be hard for Gorbachev to crack down on the corruption it has spawned. Here as elsewhere the gridlock seems unbreakable. It is hard to envisage the political consequences of the dismal economic scenario in prospect. Nobody expects the regime to be toppled by the economic decline, yet it represents a new challenge to the system's stability. To be sure, the Soviet people have learned over the years to put up with a lot. And, as ideological enemy Adam Smith sagely observed two centuries before Gorbachev's elevation, ''There is a great deal of ruin in a nation.''

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