UNIT 5: HOW IMPORTANT WERE ECONOMIC WEAKNESSES IN BRINGING ABOUT THE FALL OF THE USSR? Flashcards
What was the long-term economic weakness?
The weaknesses of the Soviet economic system had been highlighted in that Novosibirsk report of 1983 distributed in the Politburo, but most of its ageing members did not understand or chose to ignore it. e.g. poor incentive structures, lack of innovation, low labor productivity
The command economy set up by Stalin (highly centralised and controlled by the communist party) worked in the short term but as a long-term policy it actually hindered development in the USSR. - Decline started under Khrushchev and continued under the stagnation under Brezhnev.
Gorbachev realised that reform was needed – a period of trial and error of reforms followed and ended with the dismantling of the Soviet economic system.
Without the improvement of the economy, the lives of the population were weak and in a vulnerable position.
What were the problems of the USSR economy?
Although large amounts of goods were produced, they were often wasted and of poor quality - e.g. Gosplan demanded 400,000 tractors but least 20% went unused due to shortages of tractor drivers.
Lack of modernisation meant that Russia required a lot more labour than the West - e.g. in 1960’s, 25.4% of Soviet workers were in farms, in comparison to the West where just 4.6% worked in farms and a lack of modern storage system led to crops like grain rotting away due to inadequate storage facilities before it would be used.
Soviet econ prioritised arms production - e.g. Between 1965-1985, proportion of GDP spent on defence went from 12% to 17% compared to America at 6% average over this period therefore, removing finance from other areas of the economy.
Centralisation meant in farming, the government set timetables for planning and harvesting but they did not account for local initiatives. = slow improvement of crops
Discipline
What was Gorbachev’s initial economic reforms?
- Campaign to attack the problem of alcoholism to improve productivity of the Soviet workforce - many turned up to work drunk.
- By mid-1980s alcohol accounted for 15% of all household spending because there was a lack of other products in shops.
- The legal age for the consumption of alcohol was raised to 21, the number of retail outlets where alcohol could be bought was reduced, the cost of vodka in the shops tripled.
- Failed as the tax revenues that the government gained from the alcohol fell, drinking levels started to rise as the illegal moonshine liquor was produced in large quantities.
- Criminal gangs gained power through making illegal alcohol under Gorbachev’s anti-alcohol campaign.
Acceleration
What was Gorbachev’s initial economic reforms?
- The 12th 5-year Plan controlled by central planning to improve production and accelerate economic growth.
- Investment would be in science and research. Investment was diverted to construction projects to equip the factories, but it led to overspending.
- Soviet industry was slow to use new technology therefore, old factories relied on old equipment which was prone to breaking down and therefore became increasingly unproductive.
- The agricultural sector wasn’t improving in productivity even though it had large sums of investment.
- Large focus on quantity rather than quality.
- Gorbachev financed acceleration from borrowing from Western countries. As a result, government debt rose from $18.1 billion in 1981 – $27.2 billion in 1988.
Gorbachev’s policy of acceleration did little to address the fundamental weaknesses of the Soviet economy which was the level of opposition to change from the party.
Describe Gorbachev’s attempt to supress opposition in the party.
Gorbachev tried to streamline the state apparatus to avoid waste by setting up superministries to coordinate economic activity.
This failed because they were implemented by the people the reforms were trying to reduce the power of.
Changes to investment priorities caused resistance from the military
Why?
Industrial and military investment could not be increased because other sectors would suffer which posed a threat to the government’s ability to produce consumer goods.
The alternative was to go into deficit. Between 1985-86, the deficit of the Soviet economy rose from 2.4 % of GDP to 6.2 %.
The problems were made worse by the war in Afghanistan, which consumed large sums of money, and the increased defence spending considering the USA’s plan of Strategic Defence Initiative (Star Wars) programme.
What is economic perestroika?
The state apparatus was the obstacle to reform.
In January 1987 Gorbachev launched economic perestroika to introduce market mechanisms and allow private enterprise to revitalise the economy.
This would provide incentives that would encourage production and give greater flexibility than the central command economy in meeting the needs of the population.
What were the key reforms of economic perestroika?
The encouragement of joint ventures, January 1987. The government allowed foreign firms to establish businesses in the Soviet Union, usually in joint enterprises with the state. Moscow got its first McDonald’s in 1990.
The Law on State Enterprises, June 1987. This loosened state controls over wages and prices which weakened the authority of Gosplan. Allow elections for managers and for factories to freely produce once they met government targets.
Co-operatives were legalised in 1988. Allowed the establishment of small-scale private enterprises which could set their own prices – resulted in the development of cafes, restaurants etc.
What was the impact of economic perestroika?
Small increase in growth rate (1% - 2% from 1986-87) of food production but still inadequate to feed the population - 1/5 of the Soviet Union’s food imported, food rationing introduced.
Enterprises still subjected to state interference - decided on the allocation of materials. Managers preferred to keep tight control to ensure targets were met.
Products, especially foodstuffs, were diverted from state shops (where prices were low) to co-operatives that charged a much higher price - caused inflation and stripped supplies from state shops.
The fact that co-operatives could shop around for a buyer for their goods, resulted in more deals with richer city authorities, leaving poorer cities without adequate food and other basic products.
The co-operatives were more productive than the state sector and the potential for profits attracted the attention of corrupt government officials who demanded bribes for permission to continue to operate.
By the end of 1989, the Soviet economy was massively in debt.
Gorbachev’s reforms had made the situation far worse. Strikes had increased, as workers protested over unpaid wages and food shortages. There was also little point in having more money because there was nothing in the shops to buy. Gorbachev’s failure undermined his political power and position.
