USSR Economic Challenges & Reforms

Economic Issues Facing the USSR in the 1980s

• The Soviet economy stagnated under Brezhnev, leading to low living standards and necessitating reforms
• Reforms were implemented, but undermined central planning without creating a viable market alternative
• The absence of proper goods distribution and increased government hoarding resulted from these failed reforms
• Gosplan, the state planning committee focused measurement and rewards on production quantity, not quality or usability, which led to waste
• Gosplan estimated that 12% of machinery produced went unused in 1986
• Inadequate storage facilities caused food spoilage, like grain rotting
• Agriculture was a weak point, with industry having its own problems
• The Soviet economy was not fully modernized and lacked sophisticated agricultural machinery, requiring more labor compared to American farming
• 25.4% of Soviet workers were employed on farms in 1960, compared to 4.6% in America
• The Soviet Union's transport infrastructure was not fully modernized, making food distribution difficult
• Andropov's tenure was too short to significantly impact economic policies
• Arms race spending increased from 12% to 17% of Soviet GDP between 1965 and 1985
• American defense spending averaged around 6% of GDP during the same period
• High military expenditure deprived other economic sectors of necessary funds
• The Politburo subsidized a parallel research program in response to Reagan’s Strategic Defense Initiative, increasing military technology competition

Reforms

• Glasnost promoted open government and information dissemination
• Glasnost was used by Gorbachev to gain support from writers and intellectuals, as a counter to hardline communists
• By 1987-88, Glasnost allowed access to foreign media, leading to dissatisfaction with Soviet living standards
• The Nineteenth Party Conference in June 1988, revealed healthcare, education, and rural poverty issues, leading to doubts about communism
• Chernobyl's disaster highlighted negligence and incompetence
• Glasnost revealed the terror under Stalin, leading to questioning of communism's foundations
• Radicals criticized Gorbachev for slow reforms, while conservatives thought they were too fast
• Soviet republics demanded independence, showing Glasnost destabilized party rule by permitting criticism
• Perestroika involved rationalization (1985-1986), reform (1987-March 1990), and transformation (March 1990-August 1991)
• Uskorenie, an initial economic reform aimed to boost economic modernization, growth, and production in the period of rationalization from 1985-1986
• Gorbachev initiated market-oriented reforms from 1987 to March 1990, and political reforms to remove resistance from old party members
• From March 1990 to August 1991, transformation saw Gorbachev abandon single-party rule and the command economy, losing party control
• By 1985, the Soviet economy was falling behind the West and Asian countries
• Perestroika failed and the economy declined

Elections

• Gorbachev aimed to create socialist democracy, introducing multi-candidate elections in 1988
• These elections didn't allow voting for different political parties
• 1,500 Congress of People’s Deputies seats were elected, while 750 were appointed by the Communist Party
• The reforms allowed for a choice between radicals, moderates, and independents
• The Supreme Soviet was reformed and met for two three-month sessions annually, with Gorbachev as Chair
• The Supreme Soviet had partial independence from party leadership, weakening the party

Election of 1989

• Candidates participated in public debates
• Communists won 80% of seats in the Congress of People’s Deputies
• Yeltsin won 89% of the vote in Moscow
• Newly elected deputies formed the Inter-Regional Deputies Group (IRDG) with a radical anti-communist agenda
• The IRDG advocated private property and greater autonomy for republics
• Nationalists campaigned for independence, which led to violence in Georgia
• Yeltsin became a popular rival to Gorbachev, posing a threat due to his popularity with Nationalists
• Gorbachev did not stand for election, weakening his position due to a lack of popular support

Republic Elections 1990

• Anti-communist trends increased in the republics
• Democratic and nationalist groups won a majority of seats
• Elections increased anti-communist and nationalist groups' authority
• Democratization questioned the party's role
• Yeltsin stripped the Communist Party of its leading role and demanded a new constitution
• Gorbachev sought constitutional changes for more power, leading to his presidency in March 1990
• Gorbachev was appointed as president by the Congress of People's Deputies, lacking popular support
• Gorbachev created the presidency to increase his power and establish a power base independent of the party and the Supreme Soviet
• He was appointed for 18 months to deal with the economic crisis and unrest, and occasionally censored the press or used troops to restore order
• Supporters abandoned Gorbachev for abandoning democracy

What Needed Reforming in the 1980s

• Under Brezhnev the structure of government was inefficient, bureaucratic, old, and corrupt

Reforms and Their Effects

• Gorbachev reduced alcohol production at state-run factories by 50% in May 1985 through the continuation of Andropov's anti-alcohol campaign
• The government assigned 55,000 party members to a task force to stop illegal alcohol production which failed
• In 1987, alcohol consumption was double that of 1960, with 15-16 liters consumed per person over 15 annually and 4.5 million registered alcoholics
• Citizens began drinking samogon which is illegally manufactured alcohol, resulting in a 67 billion rouble drop (9% of GDP) in government alcohol revenues
• The anti-alcohol campaign was abandoned in 1988
• Uskorenie, aimed to end economic stagnation, involved increased investment to modernize the economy
• Gorbachev predicted a 20% increase in industrial production in 15 years, which failed
• Oil prices fell from $70 a barrel in 1981 to $20 a barrel in 1985, reducing Soviet oil revenues by ⅔
• Government debt rose from $18.1 billion in 1981 to $27.2 billion in 1988 due to reduced oil revenues
• Investing in energy production instead of high-tech machines prevented greater growth and the debt burden became unsustainable
• The Law on Individual Economic Activity in November 1986, legalized small-scale private work such as teaching and repairs
• The 1987 Law on State Enterprise aimed to give factory management power, yet Gosplan maintained control
• Higher prices resulting from this law increased government debt
• The 1988 Law on Co-operatives legalized large-scale private companies which were a success
• By 1990, nearly 200,000 co-operatives were set up
• Co-operative members' incomes were 2-3x higher than state enterprise employees and turnover increased from 29.2 million roubles to 1.04 billion roubles
• Gorbachev restricted Gosplan's power and abolished it in 1990
• Between 1987-1990, a partial market was created that could not function properly
• The government subsidized prices below market rates
• Co-operatives, free market prices were higher than state-subsidized prices and were unpopular, leading to price caps that made production uneconomic
• Partial market reforms undermined central planning without creating a market alternative
• This resulted in ineffective goods distribution and increased shortages
• Shortages occurred despite Soviet farms producing 218 million tons of grain because the system had been abolished
• GDP shrunk by 4% between 1986 and 1990
• Economic chaos led to widespread dissatisfaction, with Gorbachev's approval rating dropping from 52% in December 1989 to 21% in November 1990 and strikes increased from 260 enterprises in 1990 to 1775 in 1991
• Stanislav Sharalin and Grittori Iavlinskii developed a plan in August 1990 for widespread privatization and complete marketization in less than 2 years for Gorbachev and Yeltsin
• The 500 Day Program aimed to transition to a full market economy, however Gorbachev backtracked due to hardliner opposition
• Despite radical reform in 1991, the government did not adopt an overall plan
• In January 1991, the Supreme Soviet introduced private property and in April, a law was passed to allow citizens to trade stocks
• The economy continued to decline with oil, steel, and tractor production falling
• The Soviet economy was moving beyond the crisis to catastrophe
• By summer 1991, both the Soviet and republican governments were bankrupt and Yeltsin announced a full marketization program for October 1991
• Gorbachev's reforms created an economic crisis, which turned into a catastrophe that undermined the authority of the Communist government.

Nationalism

• The Sinatra Doctrine meant no longer interfering with the internal affairs
• The rise in nationalism across the USSR in the 1980s was due to cadre changes and anti-corruption efforts in which Russian leaders replaced leaders of Republics, creating underrepresentation
• Soviet republics had grievances against Russian dominance in Soviet politics, fueling nationalist aspirations
• Economic decline was linked to Russian leadership, while economic growth was linked to local leadership
• Glasnost exposed Stalin’s persecution of non-Russian people which highlighted living standard differences and allowed nationalists to publish material demanding greater autonomy
• Different countries are allowed to follow their own path to Communism due to the Sinatra doctrine, which caused the fall of Communism across Eastern Europe
• Democratization allowed nationalists to fight and win elections and gain majorities in some Republic governments in 1990
• Lithuania declared independence in March 1990
• Armenian nationalists in Karabagh wanted to unite with Armenia, organizing protests due to redrawing of boundaries in February 1988
• Gorbachev instituted direct rule of Karabagh and had lost control of Azerbaijan by 1989
• Government intervention led to massacres and forced immigration of Armenians
• New groups fought for nationalist communities
• Uzbeks massacred the Muslim minority of Meskhetians in 1989
• The Soviet Union was unable to restore peace or negotiate a compromise and people lost faith in the Soviet system
• Georgians protested against the rights of the Abkhazian minority
• Soviet troops killed 19 protestors and wounded thousands more when trying to restore peace
• The USSR would use lethal force to stop nationalism, the government refused to take responsibility for the massacre and blamed local military leaders
• Chernobyl's negative impact on population and environment was exposed in Russia
• In Estonia, they declared itself Sovereign from the USSR in November 1988
• Economic sanctions failed to stop Lithuania (declared in 1989)

Baltic States and Nationalism

• The Baltic states' nationalist movements were among the first and most organized to demand full independence
• Ethnic grievances were present in regions and was caused by cultural suppression and unequal economic treatment
• The Soviet Union’s structure was based on independent republics, the regions were less restricted from demanding sovereignty
• Glasnost allowed repressed ideologies to be expressed which disrupted the unity
• Republics began passing local laws that often contradicted Moscow's directives, leading to decentralizion of power

Gorbachev

• Gorbachev may not have had a clear vision for the economy and used experiments to get results that he wanted.
• Gorbachev did not seem to understand the consequences of his actions
• Gorbachev faced critical resistance from his party members
• Gorbachev reduced power within the party, leaving him exposed as a leader
• The measures he implemented to raise the people's expectations failed to satisfy them
• The end of the Brezhnev Doctrine led to a rapid collapse of the communist government in Eastern Europe
• Gorbachev’s decisions left immense damage to the relationship between the central government and the government's republican elite
• His decision to replace Kunayev with Kolbin inflamed tensions in the republic
• His hesitancy to handle the ethnic clashes in Nagorno-Karabakh showed how he was fully aware of what he was doing
• The declaration of a state emergency and obtaining full control from Moscow did nothing other than make the tensions worse
• The rise of nationalist demonstrations for independence in the Baltic states exposed the government's lack of a clear strategy
• Gorbachev’s inconsistencies with his actions and replaced real reformers with conservatives caused him to have enemies on both sides
• Gorbachev was hesitant in key moments, for example after the Chornobyl nuclear accident, he took several days before releasing the accident to the people
• Gorbachev was looking to renovate Soviet agriculture by reorganizing its central government institutions
• Only under Gorbachëv did the Politburo decide to move beyond the limits of Andropovite policy
• The collective outlook of his Politburo and Secretariat colleagues was not as open-minded as his own, and the impact of this single individual over the course of Soviet politics was decisive
• He had no grand plan and no predetermined policies; but if Gorbachëv had not been Party General Secretary, the decisions of summer 1986 would have been different
• The USSR's long-lasting order would have endured for many more years, and almost certainly the eventual collapse of the order would have been much bloodier than it was to be in 1991
• The irony was that Gorbachëv, in trying to prevent the descent of the system into general crisis, proved instrumental in bringing forward that crisis and destroying the USSR
• Gorbachev believed that the Soviet communist order was in many ways already superior to capitalism
• Gorbachev thought that the Soviet type of state provided its citizens with better healthcare, education and transport

Yeltsin

• Soviet figures concocted ‘Word to the People’ calling against the conditions in the USSR referring to motherland
• The signers of ‘Word to the People’ knew what consequences would occur, a coup d’etat
• Yeltsin’s response to coup attempt in 1991 was successful because he denouncing the coup as unconstitutional,
• Yeltsin weakened the foundation of the Union (party)
• The Coup result of Gorbachev’s Union Treaty lack of popularity of allowing republics to have more power,
• Yeltsin resisted the Coup= the increase of Yeltsin’s authority of
• Yeltsin urged a faster pace of reform and a broader dimension for glasnost
• Ligachev talked to Politburo colleagues about Yeltsin’s domineering tendencies, but Gorbachev tried to protect Yeltsin but did not succeed
• Yeltsin was an incoherent, angry and impulsive individual who lacked all tact with no coherent program
• Yeltsin demanded faster and deeper reform and became the Chairman of the RSFSR Supreme Soviet in March 1990

Yeltsin as an Alternative Leader to Gorbachev?

• He called for multi-candidate elections to all posts in the Party
• Yeltsin won Election in June 1991, and received a 57% of the vote
• Yeltsin advocated market reform and democracy
• Gorbachev denounced the privileges of Party leaders in the Twenty-Seventh Party Congress advocated for renewed focus on equality

Yeltsin’s Contributions to the Fall of the USSR

• attacked publicly communists who opposed reforms of 1987
• Exposed the factionalism that existed in the Party
• Attacked Party conservatives in 1988
• Banned the Communist Party
• Signed the Minsk Agreement which stated that Soviet Union had been replaced by the Commonwealth of Independent States
• Encouraged non-Russian republics to establish their independence

The USSR faced economic challenges due to partial market reforms and Gosplan's inefficient production measurements. Agriculture struggled to match American efficiency despite investments. Lack of transport modernization and high defense spending further strained the economy, hindering modernization by the 1980s.