(FORTUNE Magazine) – THE OUTLINES are clear now. Mikhail Gorbachev is not just trying to perk up the Soviet Union's chronically ailing economic system by motivating managers and getting workers to cut down on vodka. Sometimes sounding like Margaret Thatcher, if not Ronald Reagan, he is pushing and prodding what is still a collective leadership toward fundamental change. Though the outcome is far from certain, Gorbachev's quest itself will have profound implications for Western business in terms of trade, competition, and opportunities for investment. In the now-familiar litany of Gorbanomics, factories would compete among themselves and prices would be set partly by market forces. Successful enterprises would be richly rewarded, and laggards would wind up on the ash heap. Moreover, Gorbachev, who is General Secretary of the Communist party, has linked the whole program to glasnost, a word best translated as ''openness'' or ''public airing.'' Not only does he want more competition in Soviet life, but some measure of democracy too. The Soviets have plenty of sympathy for Western students of their system, who peer through a glasnost darkly, since they see the future no better face to face. ''We are not certain about the depth and breadth of the changes in our country,'' one high-ranking party official notes, ''so how can we expect Americans to be different?'' Still, even long-standing skeptics in the West have concluded that Gorbachev is genuinely committed to the most radical shake-upof the Soviet system since Stalin. He has gone far beyond the point where his proposals could be marked down as mere window dressing for foreigners or the byproduct of internal power plays. Even if he falls short of his goals, he is bound to leave behind permanent changes. A quick report card on Gorbachev's first 1,000 days -- a milestone he passes in December -- might be: -- Consolidating political power -- A: He has appointed half the ruling Politburo, he has a chance at the special party conference next year to pack more of the 307-person Central Committee with his allies, and he has solid control over the committee's staff. -- Foreign affairs -- B: He has not killed Star Wars, but should get a summit meeting with Reagan and a nuclear arms reduction agreement with the U.S. in the next few months. -- Public relations -- A+: The Soviet Union's standing in Europe and even among many Americans has probably not been so high since World War II. -- Internal affairs -- B-: Intellectuals love his cultural liberalization, but the proletariat is working harder than ever for little obvious gain. -- The economy -- C: His rhetoric has been far better than his predecessors', and he has put through some modestly impressive new laws, but he needs to do more homework. -- Additional comments: a very quick study, with real potential to grow. He will need all his potential. To install what he calls his new economic mechanism and then get it to work, Gorbachev faces the world's toughest management challenge. The Soviet economy remains depressed. The country's vast industrial plant is more dilapidated now, compared with that of the U.S. or Western Europe, than it was 30 years ago. There have been isolated successes, such as the space program. But the quality and design of many Soviet products are still far below world standards. Reform has always been risky in the Soviet Union. Prime Minister Alexei Kosygin never got anywhere in his attempts to make central planning more efficient in the 1960s, and General Secretary Nikita Khrushchev ultimately was bounced for his efforts to move away from Stalinism. Gorbachev is running Khrushchev-size risks. Even partially dismantling the centralized planning system set up by Stalin requires rolling back the powers and privileges of much of Russia's ruling class. If Gorbachev moves too cautiously, the passive resistance of many thousands of bureaucrats and local party bosses will defeat him. If he pushes too hard, he could create a political backlash that might bring him down. In addition, reform in the Soviet Union may severely test the ability of the Communist party to maintain control of its empire. What makes these risks worth running is Gorbachev's sense that the country has reached what he calls a pre-crisis state. Says Seweryn Bialer, a Soviet expert at Columbia University: ''The leadership has convinced itself that the price of radical change is less than the price of business as usual.'' Gorbachev has suggested that what is at stake is nothing less than the Soviet Union's survival as a superpower. If that is true, should capitalists be cheering him on? After all, a Soviet Union whose economic prowess matched its military power might be a more dangerous rival. The answer appears to be yes -- for reasons both political and economic. If the Soviets are to modernize their economy, they must open it up. The spread of technology would require more imports of everything from personal computers to machine tools. It also would lead to freer communication, both among Soviets and with the West. This might well speed the pace of reform by making it harder for stay-put bureaucrats and diehard propagandists to justify the old system. As Soviet citizens see more of what the rest of the world has to offer, and gain greater access to consumer goods, their appetites for those goods may grow. It is at least arguable that pressure then would rise for the government to invest more in the consumer economy and less in arms and adventurism. Gorbachev's own sense of what he must do has clearly evolved since he took charge in March 1985. Initially, he struck most observers as just a younger, more dynamic version of his patron, Yuri Andropov, the former KGB chief who served briefly as General Secretary. Gorbachev's watchword was ''discipline'' -- exemplified by his famous anti-alcohol campaign and a vigorous crackdown on both official corruption and the black market. Though at first he claimed that economic reform was his top priority, his program of perestroika, or restructuring, seemed designed to improve administration of the economy rather than change the whole system. Ministerial heads rolled by the hundreds. ''Of the 2,500 people in Moscow who did business with American companies, 1,500 were replaced,'' says the head of one large U.S. trade group. BUT GORBACHEV'S tone changed dramatically about a year ago, some months after the Chernobyl nuclear accident offered a terrifying reminder of the inadequacies of Soviet technology and management. For the first time he insisted that his main social priority -- and an essential precondition to economic reform -- was developing more democracy in Soviet life. As he told a meeting of Soviet writers and editors this July, ''The main point of everything we are doing is to rouse people . . . to involve their energy and ^ interest. When you and I tried to paint everything in rosy colors, the people . . . lost interest in the press and public activity and felt degraded and insulted.'' The media suddenly showed new vigor in uncovering the kind of shortcomings in Soviet society that previously had been revealed only in the Western press or on the blurred carbon copies illegally cranked out by the samizdat, the Soviet Union's dissident press. Many Western experts, and some Soviets, believe Gorbachev's radicalization resulted from on the job exposure to the depth of the country's systemic crisis. Says Columbia's Bialer, who had long been a skeptic about significant reform in the Soviet Union: ''Gorbachev is taking this new course in order to attack the crisis at its source, the alienation of the Soviet people from their government. The fact that he isn't limiting reform to the economic sphere is to me the best reason for thinking he may yet succeed.'' At the June plenum of the Communist party's Central Committee, Gorbachev the would-be liberalizer was vividly on display. He proclaimed the necessity of shifting from ''command-and-administer forms'' of running the economy to a system of ''mainly economic management.'' Factories, he insisted, must be forced to finance their own operations and determine more of their production on the basis of ''commodity-money relations'' (Marxspeak for supply and demand). ''How can an economy make progress if it offers hothouse conditions for laggards, while hitting front-runners?'' he thundered in downright Thatcherite rhetoric. His solution: establish ''real competition between factories and organizations,'' in which winners gain ''tangible economic benefits in reward,'' perennial losers are closed down, and productive workers receive pay incentives ''with no limit set.'' In closing he issued a call to the comrades for more individual initiative, declaring that ''the principle that all not banned by law is permitted should be applied more broadly.'' BY WESTERN standards both Gorbachev's glasnost and demokratizatsiya campaigns are and will remain severely limited. Criticism of the party's monopoly on political power, defense policy, or the activities of the KGB are just a few of the subjects unlikely to get bathed in glasnost anytime soon. Local party officials almost certainly will have the right to approve factory managers elected by workers, and no one is even whispering about extending to the Politburo Gorbachev's call for multicandidate elections by secret ballot. $ And cynics note that whatever their other uses, Gorbachev's reforms are handy for eliminating opponents. What impresses many Western experts is Gorbachev's apparent grasp of the difficulties that remain. In particular, they point to his candid acknowledgment of the need to loosen the state's control of prices and to counter its virtual monopoly over supplies by establishing a system of regional wholesalers not controlled by any one government ministry. ''Until the recent plenum, Gorbachev seemed bent on repeating every mistake of the past 20 years,'' says Ed A. Hewett, an economist at the Brookings Institution in Washington. ''Now for the first time I can see the shape of a major reform, whose priorities seem to be right.'' At the heart of that reform, which is to be phased in over three years starting next January, is Gorbachev's desire to give managers of the 37,000 enterprises now directed by Moscow ministries more freedom to determine their own destinies. The vast number of monthly and yearly production targets would be drastically reduced. So-called state contracts -- priority orders placed by ministries -- are supposed to shrink from nearly 100% of production to 30% or less in most nondefense industries. Factories and retail outlets would be allowed to bid for orders and supplies among themselves. On deals made between enterprises, negotiated prices would be permitted within limits. Enterprises could keep a percentage of their profits to use as they saw fit, either for bonuses or capital reinvestment. Many of the elements of this semi-market scheme reflect the ideas of a band of economists who worked together for nearly two decades in an obscure think tank in Novosibirsk, Siberia. When Gorbachev came to power, members of the group, led by Abel Aganbegyan, a portly economist of Armenian background, were called to Moscow to put their theories into practice. They face a daunting task. Like Kosygin's similar reforms, Gorbachev's new law sets no limit on the state's ability to preempt contracts between enterprises by placing obligatory orders. While the law calls for fewer production targets, it does not actually curb the power of Moscow ministries. Nor have Aganbegyan or any other members of Gorbachev's brain trust explained how they plan to reconcile talk of ''thousands'' of factory closings with other assurances that full employment will continue. Or how they will avoid inflation. To ease the transition, Gorbachev badly needs a short-term payoff. As Soviet economist Nikolay Shmelyov pointed out in a recent article in the literary monthly Novy Mir, motivating Soviet workers with higher wages and bonuses is not very effective ''because there is nothing for the people to buy with their money.'' (Gorbachev later praised the article.) If factory workers find themselves laboring harder for no material gain -- or if they wind up with pay cuts because their factory's products are rejected by new government quality inspectors -- resentment would surely soar. While uprisings similar to those in Poland seven years ago seem unlikely, any kind of unrest among workers would help Gorbachev's opponents resist further reforms. Gorbachev is clearly counting on a big increase in agricultural production to reduce food shortages. Rather than imitate the Chinese and break up his country's collective farms, he hopes to increase production by, among other things, expanding the tiny private plots that already produce at least 20% of farm output on just 3% of Soviet farmland. New laws that legalize moonlighting and liberalize the creation of small- scale service businesses, such as restaurants and auto repair shops, are also at least partly intended to bring a few quick improvements in the Soviet quality of life. Finally, like any smart politician, Gorbachev is promising some straightforward pork -- a huge increase in new housing investment. Among his longer-term objectives, none is more critical than his effort to boost foreign trade. Says Jerry Hough, director of Duke University's Center for East-West Trade and Investment: ''The fact that the Soviet economy has been totally protected for the last 60 years lies at the heart of most of the country's economic problems.'' Lacking both domestic and foreign competition, Soviet producers have had little incentive to adopt new technologies to win customers. As a consequence, the composition of Soviet trade -- mostly oil and gas in exchange for industrial goods and grain -- resembles a developing country's rather than a superpower's. To begin altering that sorry profile, Gorbachev has freed 21 ministries and some 70 large state enterprises to buy and sell products abroad without first getting Foreign Trade Ministry approval. Such relative independence has long been standard practice in East Germany. A law adopted last January permits joint ventures between Western companies and Soviet enterprises for the first time since the 1920s, though Westerners are limited to a 49% stake. MANY WESTERNERS are likely to be put off by the enormous regulatory burdens that still accompany doing business in the Soviet Union. But a few are already jumping in. John Naylor, president of the consumer products division of Connecticut-based SSMC, hopes to sign an agreement by the end of the year to produce 500,000 Singer sewing machines a year in a factory near Minsk. Details are still being worked out, but perhaps 10% to 15% of the machines would be exported to the West. ''The time for American business to get into the Soviet market is now, while the changes are taking place,'' says Donald Kendall, former chief executive of Pepsico and now chairman of its executive committee. The company has sold soft drinks in the Soviet Union since the early 1970s. A modest increase in East-West trade and investment is likely. PlanEcon, a Washington-basedforecasting firm, predicts Soviet exports of machinery to non- Communist countries will climb from $3.6 billion last year to nearly $6 billion a year by the early 1990s. Soviet auto executives dream of shipping thousands of Moskvich 2141s to the U.S. and Europe after 1990. The front- wheel-drive hatchback has a sticker price of around $6,000 and resembles the Yugo, the low-priced import from Yugoslavia. ANY BIG PAYOFF from increased commercial ties with the rest of the world, however, is at least a decade away. Consider Hungary. The Hungarians put through similar reforms nearly 20 years ago and were the first in the Eastern bloc to permit joint ventures with Western companies. Yet they have managed to bring in no more than $100 million of Western investment. They also have yet to figure out a way to make their currency convertible while retaining restrictions on financial transactions with Westerners, an issue the Soviets have only begun to address. Without a convertible currency plus a lot more liberalization in trading rules, talk about the Soviet Union joining the General Agreement on Tariffs and Trade (GATT), the West's principal free trade forum, will remain just that. In his first 1,000 days, Gorbachev has moved further and faster toward shaking up the Soviet system than almost anyone predicted. Says Gregory Grossman, a Sovietologist at the University of California at Berkeley: ''If they're ever going to get to a more efficient economy, this is about as good a start as you could expect.'' The sorry pace of Soviet GNP growth -- which fell from around 5% a year in the 1960s to less than 2% in the early 1980s -- should pick up slightly, and more importantly, the quality of many Soviet products may also improve. By 1999, Gorbachev might be able to create an economy that looks more like, say, East Germany's. Though that prospect would hardly thrill a South Korean, it would not sound bad to the average Soviet citizen. But the economy will not do much better unless Gorbachev can push it even further toward a freer market. The next 1,000 days will begin to tell whether he is just a gifted sprinter or a long-distance runner.