economic reforms

Question 1

Long term economic weakness

Answer 1

• fundamental economic weakness, no incentives and less difference between rich and poor. Low labour productivity
• Gosplan state planning rewarded quantity, not quality. Led to large amounts of wasted goods such as 12% of machinery being unused
• Lack of modernisation e.g. more labour needed than West but 6x more production in West, lack of sophisticated machinery, rotting crops due to lack of modern storage systems
• 17% of GDP on military, still a war economy due to Stalinist model
• centralisation and central planning, targets and timetables set by the government but this ignored local initiative, led to limited production

Question 2

Rationalisation/acceleration 1985-86

Answer 2

• first main stage of perestroika
• designed to stimulate economic modernisation, higher rates of economic growth, and for production levels to increase
• 12th FYP (1986-90)
• anti-alcohol campaign which led to a loss in 67billion roubles (revenue)
  
  • policy generally failed, initial drop in alcohol consumption but in 1987, consumption was still double 1960
• economic crisis
  
  • decline in oil prices globally ($70-$20), oil revenues in USSR fell by more than 40%
  • Gorbachev financed acceleration by borrowing from Western countries but this led to increase in government debt ($18.1 billion 1981 -> $27.2 billion 1988)
• invested in energy production and ignored advice of economic experts, increased debt which led to more gov spending on interest, less money for modernisation or consumer goods

Question 3

Reform 1987-90

Answer 3

• second main stage of perestroika
• shift to market driven economy - Law on State Enterprises in June 1987 devolved power from central gov. to factory management, allowing factory managers to set prices for their goods (gov. debt rose more)
• Law on Co-operatives in May 1988 (co-operatives essentially functioned like private companies) = 200,000 by 1990, income 2-3x higher than state enterprises
• subsidised prices, uneconomic production, shortages rose due to no effective way to distribute goods
• Gorbachev’s approval ratings fell from 52% in Dec 1989 to 21% in Nov 1990 due to the rise in prices

Question 4

Transformation 1990-91

Answer 4

• third main stage of perestroika
• began to abandon fundamental aspects of the system such as single party rule and command economy
• by this point, the economy actually stopped growing
• April 1990, inflation caused by cuts in subsidies
• approval dropped, strikes rose
• 500 Day Program (Aug 1990), 2 economists commissioned to make an economic plan for radical widespread privatisation and marketisation for 2 years. Gorbachev initially supported but then backed down due to pressure from hardliners
• private property introduced in Jan 1991, trade stocks and shares in April 1991, bankrupt by summer 1991