Perestroika Fails - Unforeseen Results of Reform
Perestroyka destroyed the Soviet Union.
Administrative levers were turned off, and economic ones were not turned on. They destroyed the old and did not form a new one. When perestroika began, when industrial enterprises got the right to dispose of the funds allocated from the state budget and to regulate wages. Such freedom pushed them to squander state funds, reduce investment in the manufacturing sector, and the depreciation of expenses. Consumption of previously accumulated fixed production capital began. Difficult conditions developed in industry, discipline and responsibility fell sharply.
Gorbachev's deficit-financed fiscal stimulus and wage hikes were funded by printing money. But because prices were controlled by administrative fiat, they couldn’t adjust, and severe bottlenecks and shortages resulted. Soviet citizens werea already accustomed to waiting in long lines, but firms that couldn't sell on the black market effectively shut down. Gorbachev, the ostensible Soviet autocrat, was unable to outmaneuver the interest groups that were threatened by his economic reforms. By 1989, the economy began to implode, and by 1991 the USSR vanished.
Perestroyka's loosened controls over the economy in 1988 led to financial imbalances and inflation. By 1989, the economy was nearly out of control. Gorbachev's plans were dogged by bad luck in several respects. The downturn in world energy prices after 1985, the Chernobyl disaster in 1986, and the Armenian earthquake in 1988 did substantial damage to the economy. Perestroyka's policies were ill-conceived, and Gorbachev's partial economic reforms contributed to the collapse of the Soviet system. Glasnost served as a powerful amplifier for the dissatisfaction that lay under the surface before Gorbachev. Perestroyka's failures in improving living standards and reforming the economy could not be endured silently as previous campaigns had been.
Although they were bold in the context of Soviet history, Gorbachev's attempts at economic reform were not radical enough to restart the country's chronically sluggish economy in the late 1980s. The reforms made some inroads in decentralization, but Gorbachev and his team left intact most of the fundamental elements of the Stalinist system -- price controls, inconvertibility of the ruble, exclusion of private property ownership, and the government monopoly over most means of production.
In January 1988, the new Law on State Enterprises went into effect, allowing enterprises to set many of their own prices and wages. Results were disappointing, however, because workers demanded steep wage increases. As the government printed more money, products fetched higher prices outside the official economy. Thus, goods usually sold in state stores at fixed prices quickly disappeared as speculators snatched them up or producers ceased making deliveries. By September 1988, many staple products could not be found even in Moscow. During 1988-89 Gorbachev also issued orders to the oblast party committees to cease interfering in the economy, and he cut the staffs of state committees and ministries involved in the economy in order to prevent them from further tampering with it. Without the state and the party to hold it together and guide it, the economy went into free-fall.
As part of General Secretary Gorbachev's perestroika campaign, factory managers were allowed to reset their own production quotas. To the horror of the central planning bureaucracy, the average factory manager cut output by 30% on the grounds that the central planners had set the goals "unrealistically high." This would indicate that the Soviets had been running the factories beyond their optimum point.
By 1990 the government had virtually lost control over economic conditions. Government spending increased sharply as an increasing number of unprofitable enterprises required state support and consumer price subsidies continued. Tax revenues declined because revenues from the sales of vodka plummeted during the anti-alcohol campaign and because republic and local governments withheld tax revenues from the central government under the growing spirit of regional autonomy. The elimination of central control over production decisions, especially in the consumer goods sector, led to the breakdown in traditional supplier-producer relationships without contributing to the formation of new ones. Thus, instead of streamlining the system, Gorbachev's decentralization caused new production bottlenecks.
Gorbachev's new system bore the characteristics of neither central planning nor a market economy. Instead, the Soviet economy went from stagnation to deterioration. At the end of 1991, when the union officially dissolved, the national economy was in a virtual tailspin. In 1991 the Soviet GDP had declined 17 percent and was declining at an accelerating rate. Overt inflation was becoming a major problem. Between 1990 and 1991, retail prices in the Soviet Union increased 140 percent.
Under these conditions, the general quality of life for Soviet consumers deteriorated. Consumers traditionally faced shortages of durable goods, but under Gorbachev, food, wearing apparel, and other basic necessities were in short supply. Fueled by the liberalized atmosphere of Gorbachev's glasnost (literally, public voicing--see Glossary) and by the general improvement in information access in the late 1980s, public dissatisfaction with economic conditions was much more overt than ever before in the Soviet period. The foreign-trade sector of the Soviet economy also showed signs of deterioration. The total Soviet hard-currency debt increased appreciably, and the Soviet Union, which had established an impeccable record for debt repayment in earlier decades, had accumulated sizable arrearages by 1990.
In the summer of 1990, Yeltsin, who had been elected chairman of the Supreme Soviet of the Russian Republic in May, backed a radical economic reform plan that would have spelled the end of many special interests within the party. Gorbachev in turn presented a much less extreme "Presidential Plan," which the Supreme Soviet of the Soviet Union passed. Yeltsin threatened that the Russian Republic would proceed with the initial radical plan, but shortly thereafter he suspended it.
In January 1991, Gorbachev replaced Prime Minister Nikolay Ryzhkov, who had become identified with the regime's economic failures, with Valentin Pavlov, an opponent of radical reform. Pavlov immediately created a mass panic by withdrawing large-denomination banknotes from circulation and limiting the public's ability to convert them to lower-denomination notes. The move, designed to reduce the vast sums of money circulating and to punish "black marketeers" hoarding large banknotes, only intensified the people's mistrust of the Soviet government. The economy continued to spiral downward, and Gorbachev and Shevardnadze had to ask the West for financial aid in order to stave off collapse. Gorbachev's retreat marked the last time economic reform dominated the agenda of a Soviet government.
In sum, the Soviet Union left a legacy of economic inefficiency and deterioration to the fifteen constituent republics after its breakup in December 1991. Arguably, the shortcomings of the Gorbachev reforms had contributed to the economic decline and eventual destruction of the Soviet Union, leaving Russia and the other successor states to pick up the pieces and to try to mold modern, market-driven economies. At the same time, the Gorbachev programs did start Russia on the precarious road to full-scale economic reform. Perestroika broke Soviet taboos against private ownership of some types of business, foreign investment in the Soviet Union, foreign trade, and decentralized economic decision making, all of which made it virtually impossible for later policy makers to turn back the clock.
|
NEWSLETTER
|
| Join the GlobalSecurity.org mailing list |
|
|
|
