THE COLLAPSE OF THE SOVIET UNION
01) LONG TERM ECONOMIC WEAKNESS
FUNDAMENTAL ECONOMIC WEAKNESSES:
● Soviet economy flawed
● Failed to create incentives for hard work or innovation
● From 1945-1980, egalitarian state
○ Difference between rich and poor much smaller than the difference in the west.
○ Therefore, less incentive to improve
● Labour productivity much lower in the West.
● Decline in economic growth
○ Over 7% (1950) to under 1% by 1980
WASTE IN THE USSR’S ECONOMY:
● Gosplan state planning committee who measured and rewarded production.
● Quality of production was irrelevant
○ As well as the proportion of the goods being used on whether they were even being used.
● Although large amount of goods were produced, they were often wasted.
● For example: Gosplan demanded 400,000 tractors to be produced every year
○ At least 20% went unused due to shortages of tractor drivers.
● Waste was a big issue:
○ Estimated of 12% of machinery went unused
MODERNISATION OF THE ECONOMY
● Never fully modernised
● Soviet agriculture lacked sophisticated machinery.
○ Required a lot more labour than the West.
● 25% of the Soviet population employed in farming compared to the 5% of the US population
● Transportation system was never fully modernised.
○ Therefore transporting food was difficult
● Lack of modern storage system led to crops like grain rotting away due to inadequate storage facilities before it would be used.
● US made x6 more production than the USSR
ARMS RACE:
● Production of expensive missiles, nuclear bombs, tanks and fighter planes.
● Proportion of GDP spent on defence went from 12%(1965) to 17%(1985)
○ Compared to America at 6% average over this period.
● Soviet defence spending starved other areas of the economy that actually needed it.
● Reagan’s SDI Program (also known as the Star Wars programme) put further pressure on Soviet economy
● The Afghanistan War was also draining the Soviet economy
CENTRALISATION
● Economy controlled by Gosplan
● In farming, the government set timetables for planning and harvesting
○ But they did not account for local initiatives.
○ Farmers, who had expertise, could not interfere to adjust the schedule to account for whether.
● Central planners set schedules for delivery of fertilisers.
○ Often delivered late or were the wrong kind for the crop planted.
● This explains why the production of important crops improved very slowly.
● Centralisation caused significant issues because it limited production.
, 02) GORBACHEV’S ECONOMIC REFORMS
Gorbachev came to power in 1985
GORBACHEV’S ECONOMIC POLICIES
Rationalisation 1985-1986:
● Led fully by the Communist party.
● Tried to improve the way the command economy worked
● Designed to stimulate economic modernisation, higher rates of economic growth, and for production levels to increase.
Reform (perestroika)1986-1990:
● Initiated reforms intended to introduce market forces into the Soviet economy.
● At the same time, he initiated Political reform designed to build support for economic change.
● Wanted to create an economy with the best features of capitalism and the best features of communism
Transformation 1990-1991:
● Abandons the command economy completely and tires to introduce a market economy
● As a result, the Communist Party lost control of the process.
● 500 day programme
RATIONALISATION 1985 TO 1986
● Appointed like minded reformers into key positions
○ E.g Yakovlev
● Campaign to attack alcoholism and increase productivity
○ May 1985 Gorbachev limited alcohol production at state run factories by 50%
● Introduced Uskorenie (acceleration)
○ This was a programme of investment to modernise the economy
○ Attempts to increase productivity by 20% in 15 years
○ Complete failure due to:
■ Falling government revenues due to crack down on alcoholism
■ The 1980s oil glut put huge pressure on their economy
■ War in Afghanistan
● Twelfth Five Year Plan
○ Aimed to increase investment and production through central planning
FAILURES
● Alcohol revenue dropped by 9% of GDP
○ Anti alcohol campaign abandoned in 1988
● Investment skewed towards construction and energy increases of high tech machines so didn’t increase growth
● Use of old equipment and technology
● Agriculture swallowed investment
● Oil prices fell from $70 per barrel (1981) to $20 (1985)
○ Soviet oil revenues fell by more than 40%
● Focused on quantity over quality
● Funded by borrowed money from the west → increased debt
○ $18 billion in 1981 to $27 billion in 1988
● Overall, it did not lead to economic growth, instead, an economic crisis.
PERESTROIKA 1986 TO 1990
● Law on Individual Economic Activity, November 1986
○ This made it legal for families to set up small scale work
○ E.g repair jobs, tutoring etc
● Encouragement of Joint Ventures, January 1987
○ 3,000 set up by the end of 1990
● Law in State Enterprises, June 1987
○ Intended to devolve power from central government to factory management.
○ Loosening control over wages, prices and produce
01) LONG TERM ECONOMIC WEAKNESS
FUNDAMENTAL ECONOMIC WEAKNESSES:
● Soviet economy flawed
● Failed to create incentives for hard work or innovation
● From 1945-1980, egalitarian state
○ Difference between rich and poor much smaller than the difference in the west.
○ Therefore, less incentive to improve
● Labour productivity much lower in the West.
● Decline in economic growth
○ Over 7% (1950) to under 1% by 1980
WASTE IN THE USSR’S ECONOMY:
● Gosplan state planning committee who measured and rewarded production.
● Quality of production was irrelevant
○ As well as the proportion of the goods being used on whether they were even being used.
● Although large amount of goods were produced, they were often wasted.
● For example: Gosplan demanded 400,000 tractors to be produced every year
○ At least 20% went unused due to shortages of tractor drivers.
● Waste was a big issue:
○ Estimated of 12% of machinery went unused
MODERNISATION OF THE ECONOMY
● Never fully modernised
● Soviet agriculture lacked sophisticated machinery.
○ Required a lot more labour than the West.
● 25% of the Soviet population employed in farming compared to the 5% of the US population
● Transportation system was never fully modernised.
○ Therefore transporting food was difficult
● Lack of modern storage system led to crops like grain rotting away due to inadequate storage facilities before it would be used.
● US made x6 more production than the USSR
ARMS RACE:
● Production of expensive missiles, nuclear bombs, tanks and fighter planes.
● Proportion of GDP spent on defence went from 12%(1965) to 17%(1985)
○ Compared to America at 6% average over this period.
● Soviet defence spending starved other areas of the economy that actually needed it.
● Reagan’s SDI Program (also known as the Star Wars programme) put further pressure on Soviet economy
● The Afghanistan War was also draining the Soviet economy
CENTRALISATION
● Economy controlled by Gosplan
● In farming, the government set timetables for planning and harvesting
○ But they did not account for local initiatives.
○ Farmers, who had expertise, could not interfere to adjust the schedule to account for whether.
● Central planners set schedules for delivery of fertilisers.
○ Often delivered late or were the wrong kind for the crop planted.
● This explains why the production of important crops improved very slowly.
● Centralisation caused significant issues because it limited production.
, 02) GORBACHEV’S ECONOMIC REFORMS
Gorbachev came to power in 1985
GORBACHEV’S ECONOMIC POLICIES
Rationalisation 1985-1986:
● Led fully by the Communist party.
● Tried to improve the way the command economy worked
● Designed to stimulate economic modernisation, higher rates of economic growth, and for production levels to increase.
Reform (perestroika)1986-1990:
● Initiated reforms intended to introduce market forces into the Soviet economy.
● At the same time, he initiated Political reform designed to build support for economic change.
● Wanted to create an economy with the best features of capitalism and the best features of communism
Transformation 1990-1991:
● Abandons the command economy completely and tires to introduce a market economy
● As a result, the Communist Party lost control of the process.
● 500 day programme
RATIONALISATION 1985 TO 1986
● Appointed like minded reformers into key positions
○ E.g Yakovlev
● Campaign to attack alcoholism and increase productivity
○ May 1985 Gorbachev limited alcohol production at state run factories by 50%
● Introduced Uskorenie (acceleration)
○ This was a programme of investment to modernise the economy
○ Attempts to increase productivity by 20% in 15 years
○ Complete failure due to:
■ Falling government revenues due to crack down on alcoholism
■ The 1980s oil glut put huge pressure on their economy
■ War in Afghanistan
● Twelfth Five Year Plan
○ Aimed to increase investment and production through central planning
FAILURES
● Alcohol revenue dropped by 9% of GDP
○ Anti alcohol campaign abandoned in 1988
● Investment skewed towards construction and energy increases of high tech machines so didn’t increase growth
● Use of old equipment and technology
● Agriculture swallowed investment
● Oil prices fell from $70 per barrel (1981) to $20 (1985)
○ Soviet oil revenues fell by more than 40%
● Focused on quantity over quality
● Funded by borrowed money from the west → increased debt
○ $18 billion in 1981 to $27 billion in 1988
● Overall, it did not lead to economic growth, instead, an economic crisis.
PERESTROIKA 1986 TO 1990
● Law on Individual Economic Activity, November 1986
○ This made it legal for families to set up small scale work
○ E.g repair jobs, tutoring etc
● Encouragement of Joint Ventures, January 1987
○ 3,000 set up by the end of 1990
● Law in State Enterprises, June 1987
○ Intended to devolve power from central government to factory management.
○ Loosening control over wages, prices and produce
