For those of you who, like me, have eagerly awaited Kovane’s next effort, wait no longer. If you have a degree in Russian history like A Good Treaty and several other academes among the Russia-watching community, you probably know a good deal about the collapse of the USSR already. If you don’t have that sort of background, this is a bit like taking the degree program in about a half-hour. It would probably be a bit of an exaggeration to say that it negates the advantage of a college degree; however, it’s a priceless insight into the initial stumbles that brought down a juggernaut, and it must be heartbreaking (for some) to know that it could have gone either way. At so many points in the cavalcade of errors, something could have gone right that ultimately went wrong. Que sera, sera. Although some will see it as divine validation of the western way of life, in the end it was like most catastrophes, perpetrated by those who were either too ignorant to see the consequences of their actions, too weak to arrest the plunge, or too venal to wish to. A powerful piece that is likely to be controversial, from someone who lived at least part of it – read on.
“It’s rather amusing to watch how quickly major historical events unfold nowadays. Just slightly more than twenty years ago the world was firmly divided into two separate politico-economic camps, jam-packed with nuclear weapons and throngs of armies. The sides routinely vilified each other and occupied themselves with calculating how to tip the coveted strategic balance without sending the economies into free fall; it seemed that the status-quo would hold for eternity. Fast-forward 10 years: the picture is so staggeringly different that some kind of time paradox might be rightfully suspected. Shards of the once formidable Soviet Union are thrown back for almost 30 years, torn apart by terrorism, nationalism and a huge surge in crime. On the other hand, the United States is unanimously hailed as a victor, and the spoils are indeed theirs: Russia is flooded with US advisers; experts gleefully predict doomsday scenarios for Russia, one worse than another; international corporations are eyeing newly appeared markets. Pax Americana has never shone more brightly and there is not a single speck on its horizon. Another 10 years forward, to the present day, and the picture once again becomes rather different from what was expected earlier. The capricious opinion of experts has changed, and they are circling the USA, simultaneously fawning over China. The usual downbeat voices of Russia’s critics are now interspersed with screeches about “the resurrection of Russian imperialism” and “The New Cold War”. Who knows what the world will face later? Will it be domination by Burkina Faso’s undefeatable military and economic might? Given the previous events, I hesitate to completely brush aside the possibility of that happening. The most unsettling thought, however, is in knowing that any country can go down in flames in a matter of years, and sometimes it’s your country. The dissolution of the world’s second economy had a profound effect on the lives of millions, probably even billions of people, and yet the reasons behind it haven’t been thoroughly researched. Studies in Russia often tend to be heavily influenced by various conspiracy theories, because the pain is too fresh, while the West views the Soviet Union’s break-up as something natural; a victory of good, capitalism and democracy. Unfortunately, the analysis of such events may be one of the most difficult endeavors in today’s science, as the number of the processes affecting the outcome is truly infinite. They interact in a complex way, sometimes canceling each other out or, on the contrary, amplifying – the key to a successful analysis is creation of a model that takes into account the most significant processes. That’s why the whole practice is regarded as a kind of witch-doctorism. Analysis of past events is much easier, as the outcome is already known, and a lot of data is available for use in the study. That’s what we’ll do, trying to look into the causes of the USSR’s demise.
The 1950-1970s were the pinnacle of Soviet economic might. Having lost the most developed region in WW2 (the national income dropped by 34% in 1942 compared to 1940), the Soviet Union rapidly recovered, and by 1950, the national income was 1.6 times higher than in 1940. On average, the economy grew at the annual rate of 6-7% during 1945-1970, which is certainly the most successful period in the history of Russia. But there should be no illusions as to where this achievement came from. The specifics of the planned economy allowed the government to set an arbitrary investment rate – practically speaking – as consumption was strictly controlled, and economic growth was achieved at the expense of common people’s need.
Stalin’s postwar rule was marked by a very careful economic policy. Soviet people were provided with the most basic goods and services: full coverage free health care, free and quality education and affordable food and clothes. But beyond that, the standard of living was very low, especially in rural areas. The prevalence of cars and home appliances was almost non-existent; the situation with the housing provision was appalling. But nevertheless, the nation was enthusiastic after the Victory, had strong faith in a bright future and saw improvements in everyday life: real wages also grew, though admittedly lagging behind industrial development. That created a situation whereby the government had a large amount of spare resources to allocate. Stalin opted for creating a solid industrial base and strong military: at that time the onset of the Cold War dictated priorities. The government’s main efforts were concentrated on heavy industry development. All produced goods were divided into two categories: “A”, goods for enterprises, and “B”, goods for consumers; the first category received a much higher priority. On the whole, the economic system was sound and the state was running a large surplus.
After Stalin’s death the power passed to the triumvirate of Malenkov, Beria and Molotov. That was the first time since NEP when the Soviet state flirted with ideas of liberalization. On Beria’s initiative, more than a third of prisoners were freed, several prominent show trials were stopped, a new law that outlawed any form of torture was signed and some other liberalizing measures came into being. But he was too dangerous a rival. Firstly, Beria had at his disposal the most organized and strongest organization, NKVD, and secondly, he had more than enough dirt on each and every one of his fellow party members. That’s why nobody protested when Beria was arrested on familiar espionage charges, and quietly shot. The balance of power then shifted to Malenkov. He also favoured liberalization, and shared Beria’s belief in the necessity of transferring the power from the Party to economic executives (he, conveniently, was the Chairman of the Council of Ministers of the USSR). The ban on foreign press was lifted; a new law easing the lot of peasantry was adopted; and Malenkov announced a plan for increasing the production of category “B” goods. Among his undertakings, he sharply reduced the incomes of Party members, a step that proved to be fatal to Malenkov’s career. Khrushchev used this mistake with lightning speed and roused opposition; Malenkov was ousted on the accusation of being close to Beria. Khrushchev became the sole pretender to supreme power. His rule was characterized by a very erratic style of governance. Most of his initiatives were concluded with the phrase “in the next two years”; the result was expected here and now. Despite relaxation of political life (Khrushchev’s Thaw), Stalin’s economic policies were generally continued, although serious efforts were made on construction of affordable housing. By the end of Khrushchev’s times, everybody among high-ranking Party officials realized that serious difficulties in the economy were present and that something had to be done about it, while the leader wasn’t up to the task. That’s why Khrushchev was displaced in his absence, on the grounds of “poor health condition”.
The successful attack on Malenkov denotes an important turning point in the history of the USSR’s downfall. The Party bureaucracy rejected the slightest implication of losing power, and immediately disposed of its advocates. Since the foundation of the Soviet state, political ideas took precedence over economic ones; no one had any notion how to practically put Marx’s ideas into action. Drunk with first successes, the Bolsheviks even intended to abolish money, but reality harshly reminded of the utopianism of this plan. Collectivization and industrialization were met with protest from economists, but they didn’t see what was clear to the political leadership – the impending war. History abundantly provided the USSR with events demanding emergent interference in the economy: WW2, the USA’s nuclear advantage and the Cold War. Responding to these challenges, Stalin created a very strict hierarchical Party system where members received power and significant material bonuses. But the price of error was very high – dismissal at best, and arrest or execution very often; no one was safe from Stalin’s wrath. These harsh measures kept Party members in check and ensured the renewal of the Party’s ranks – social elevators worked. After Stalin’s death there was a perfect moment for letting the economy perform its function – to satisfy people’s needs. But the top Party leadership didn’t want to relinquish their power and privileges. Besides, they had obtained total unaccountability; the most common punishment for a serious mistake became transfer to another position or a small demotion. Virtually, the only way out of the Central Committee was in a coffin, and the average age of the Politburo’s members steadily grew, reaching 71 years in 1981. Those people controlled all spheres of life in the Soviet Union, and needless to say, such tendencies didn’t augur well.
Another common problem that plagued the economy was the growing complexity of central planning. Initially, when Marx was writing his magnum opus, he stood on the simple idea that consolidation of enterprises would result in a more productive economy and central distribution would eliminate the horrible working conditions of his time. But all these notions were formulated on the premise that the number of produced goods was limited. That was true for the first half of the 20th century (the Soviet economy was developing at tremendous pace then), but In the 70s the USSR produced 25 millions of different type manufactured items and had tens of thousands of enterprises. And that is despite widely used standardizations of all production! Because of that, the central planning was a very inexact science; its data was fraught with distortions, backdated corrections, and it heavily relied on the ability of CEOs of enterprises to negotiate with each other. And the importance of personal connections was paramount.
The problem of creating working administrative structures was important over the whole Soviet period, but it became especially crippling after the 50s. The system of ministries was growing more and more inefficient, as they tended to neglect regional interests and engaged in competitive wars for investment resources. Trying to bite off more than they could handle, there were many investment projects that were never finished. This highlights another problem inherent in the Soviet economy – weak profitability assessment. Although some methods were used (calculating the cost of labour to produce), distorted prices made introduction of any new product or technology difficult. Such decisions were usually discussed on ministry commissions, and the process was much bureaucratized. As a consequence of that, the Party tended to direct resources at the sectors where output was understandable and could be used to report as an achievement: the military and the space program. Khrushchev attempted to reorganize ministries into sovnarhozes, so different branches of industry cooperated more, but failed. Enterprises got two or even three masters to serve then, and economic effectiveness suffered. One of the first decisions of Brezhnev, who replaced Khrushchev, was a return to the system of ministries.
Also not everything was smooth with the mood of the common people. If in the 50s a qualified worker earned 3-4 times more than an entry-level one, by 1970-1980 the difference was practically leveled. A Soviet engineer after 5 years of higher education earned less than a worker after high school. This fact alone got on the nerves of the Soviet intelligentsia, and alienated it. Initial post-war enthusiasm quickly turned into bitter disappointment and cynicism. Many vented these feelings by drinking, the alcohol consumption steadily increasing since the 60s. As the deficit of goods worsened, the Soviet state was becoming a more and more inconvenient place to live.
The infamous Soviet deficit was always different. Back in the 50s, only a few goods were in short supply; that was not a consequence of any special abundance, but rather strict control over the financial sector. After Malenkov’s reduction of prices the problem became more acute, but the private market alleviated it in regard to food and clothes: however, durable consumer goods were rare. After 1970, the growth of the money in people’s hands was increasing faster than the availability of goods, and the list of what was considered ‘deficit’ expanded. And finally, during the last years of the Soviet Union, the shelves of stores were almost empty. The deficit became a sort of self-fulfilling prophecy – people expected that goods would disappear and bought them up. The reason that greatly exacerbated the deficit was wide-scale corruption in the Soviet trade. Managers who were responsible for the distribution of goods often hoarded them in order to sell them for personal profit or exchange for other rare goods. The state usually turned a blind eye to such activities, preferring to fight petty pilfering and speculation. The only attempt to change things was made by Andropov in 1982. He launched an anti-corruption campaign which revealed large-scale scams in Moscow, the Caucasian and Middle Asian republics. The ties led to the highest levels in the Politburo, but the Soviet leadership decided to hush up the issue.
After Khrushchev’s dismissal, Brezhnev came into power; the second most powerful man was Kosygin, the Chairman of the Council of Ministers. By that time, almost everyone understood the reality of the economic difficulties that the Soviet Union faced. All the limits of extensive growth were exhausted; the number of employed workers stabilized; and the economy seriously lagged behind in terms of productivity compared to the Western developed nations. Two ideas were competing at the time: the State-wide Automated System of Accounting and Information Processing (OGAS), proposed by academic Glushkov, and the plan of implementing market methods by economist Lieberman, laid down in the article “Plan, Profit, Bonus”. OGAS was conceived as a united computer network managing the whole economy, and was very costly, so Lieberman’s ideas were used, and in 1965 the first documents were signed. The reform was probably the last chance to evolutionarily reform the Soviet economy. Enterprises obtained more independence; such market concepts as profit and profitability were introduced. Despite certainly being a step in the right direction, the reform was seriously flawed. The funds that remained at enterprise’s discretion could be spent on wages or equipment upgrades, but CEOs mostly preferred to distribute them as bonuses, as any investment remained in the control of ministries. The Soviet leadership was displeased with soaring wages of managers – some of them earned more than Politburo members. Besides, the reform stimulated the growth of costs, as the bonuses were tied to them. These effects gave a perfect pretext for smothering reform in the 70s, instead of correcting it. Too many people in the Party couldn’t accept the thought of losing power, so opposition to it was formidable. Another contributing factor was the influx of oil money from the recently developed West Siberian oilfield, and soaring prices of oil. This money was spent mostly on the import of consumer goods and food.
Although Brezhnev’s epoch is fondly remembered by senior citizens – real incomes increased and the state put a lot of effort into providing the country with consumer goods – the economic growth was slowing down and the renewal of the industrial base was often ignored. After Brezhnev, Andropov – a former KGB chief – became the leader. He tried to revive the economy with usual KGB subtlety: by detaining absentees and fighting pilferers, but it was like beating a dead horse. Andropov’s rule was short-lived: following him, Chernenko held out only for a year, and after him Gorbachev was elected as General Secretary.
Initially, Gorbachev was hailed as a long-awaited break from the string of senile, gravely-ill politicians, who could only read their speeches from a sheet of paper. But his first steps were more like a continuance of Andropov’s initiatives – the proclaimed policies of “acceleration”, the campaign against “unearned income” and the anti-alcohol campaign. The results of these actions were predictable – in an environment of almost full paralysis and apathy, they were doomed. The anti-alcohol campaign seriously sapped the budget; the income of light industry almost halved in 1985-86. In addition to the sharp drop in oil prices (it went down from 30 $/bbl in 1985 to 13 $/bbl in 1986) and the terrible and costly Chernobyl catastrophe in 1986, the dragging on of war in Afghanistan laid too heavy a burden on the sickly Soviet economy. By 1987 Gorbachev replaced many old conservative members of the Party, and it enabled him to do an almost complete about turn – Perestroika and glasnost became the new salvation method of the USSR. From an economic point of view, perestroika was an echo of the Kosygin reform – more independence to enterprises, and economic incentives. The single plan was to be replaced by state contractual work; foreigners were allowed to invest in the economy; and private cooperatives were gradually introduced. Cooperatives were probably the final stake through the heart of the Soviet economy – basically they could buy goods at firm state prices and sell their production at an arbitrary price. The barrier between enterprise funds and hard cash was broken; that paralyzed state plan execution, and shortages of the most basic goods rapidly developed. The first Soviet millionaires appeared in a matter of months; among them was Khodorkovsky, an ardent komsomolets then. Such exorbitant earnings couldn’t remain unnoticed, and the first racketeers formed the backbone of future organized crime. Glasnost meant that the state completely repealed all censorship. Yakovlev, the second most powerful man then and the intellectual force behind perestroika, closely worked with the press. A vicious attack was launched first on Stalin, then on the whole of the Soviet state. The most surreal stories were published on the pages of magazines and newspapers that were read and trusted by the entire country.
Soviet republics were heavily subsidized by RSFSR (modern Russia) and when the budget dried up, that gave rise to nationalistic moods and separatism. Conflicts in Middle Asia, the Caucasus, the Baltic region and Transnistria flared up, and the government did little in response to them. Gorbachev undertook a new political reform; the Congress of People’s Deputies was convened in 1988. That marked the Soviet Union’s first truly free elections. It was then that Yeltsin began to garner huge popularity. He sharply criticized the Soviet nomenclature; any of his mistakes turned in his favour. For example, in 1989 Yeltsin gave an interview to the western press, allegedly drunk: when the article from “la Repubblica “was published in the USSR, it was considered a KGB provocation against Yeltsin, and only boosted his popularity. Meanwhile, Yeltsin was elected Chairman of the Congress of People’s Deputies, which gave him real power, and in 1990 the Declaration of State Sovereignty of the Russian Soviet Federative Socialist Republic was signed. Gorbachev’s power waned, as he was outplayed by Yeltsin, who never was afraid of making tough decisions. A year later he was elected President of RSFSR, which gave him control over the largest budget. The USSR was de facto finished. Even the results of the Soviet Union referendum, which showed that the population was strongly for saving the integrity of the country, were ignored by “democrat” Yeltsin. In August of 1991 a group of conservative politicians made a last-ditch attempt to save the unity of the country by a military coup. But there was no politician strong enough whom the top of the military trusted, and GKChP failed. In December, Belavezha Accords were signed, marking the end of more than 70 years’ history of the Soviet Union.
So, what were the true reasons behind such an inglorious demise? One of the popular theories is that the USSR collapsed under its own weight. But this explanation is beneath criticism. North Korea continues to exist despite the abysmal standards of living, as does communist Cuba. If a government is willing to maintain the situation and is not afraid to use force, it can hold out for years. That was proven by many dictatorships with various levels of development. The second version, that so often captivates the minds of the Russians who are prone to conspiracy theories, is some brilliant operation by the CIA. As with many others conspiracy theories, it has more holes than Swiss cheese. In 1985 the KGB achieved one of its greatest successes by recruiting Aldrich Ames. He gave away almost all CIA spies in Russia, and the position of the American secret service had never been more weakened as at that time. But the main argument against this idea is the difficulty of such undertaking. Nobody can topple the governments of Iran and North Korea, any coup from abroad is only possible when the moment is right, and the government is near a chasm itself.
Although many participants of those events are still alive, they are not very forthcoming about the real reasons. Gorbachev changed the tune, saying that the destruction of the totalitarian Soviet Union was his lifetime goal, others are also evasive. The full picture will remain hidden, but it’s not too hard to infer that there was a complexity of causes.
First, and the most important reason, was the agonizing crisis of power. The Old Guard of the Party was unwilling to change anything and clung to the existing order of things. Among them there was no strong leader who understood all the glum prospects, who fully understood the economy and was healthy enough to carry out all needed changes. Moreover, they were impossible without sacrificing the interests of the high-level nomenclature, and The Old Guard immediately joined up forces against any strong candidate. The second echelon, to which Gorbachev and Yakovlev belonged, had to tolerate the marasmus of its elders and paid lip service to the ideals of communism, while hating them in their hearts. They also travelled around the world, and saw how leaders of their rank lived. Directors of Soviet enterprises were fed up with the constant bureaucracy of ministries and fighting the increasing difficulty of fulfilling the plan. They were sure that their skills in managing would be useful in any circumstances, and wanted changes. Intelligentsia felt themselves aggrieved and were sure that the state was suppressing them. They also were sure that they were currently not appreciated, and would be better off without the Soviet state. Workers, under the influence of perestroika propaganda, were outraged at seeming privileges of the nomenclature, which are laughable in comparison with the present lifestyle of ordinary upper-level bureaucrats. They were sure that changes would bring the living standards of the West, keeping the present social guarantees. It is they who were the grunts of perestroika, who overthrew the regime. And finally, country people were sure that in any case they had all the food, and townsfolk would crawl begging to them. So the only people who opposed the transition were old communists. The plan was to knock out their support by rocking the boat. As very few understood the specifics of the planned economy, nobody expected the depth of the fall. Whole industrial complexes turned into hollow derelict ruins because the economic links were severed. The USA also played their role, lavishing the Soviet leaders with the promises of economic help and encouraging separatism. The leaders of national republics were courted and assured of future help. And former true adepts of internationalism and Leninism turned into radical nationalists.
As it can be seen today, only former apparatchiks were right in their expectations. Most of them formed the new elite of Russia and Post-Soviet states. The other categories of citizens suffered a huge drop in incomes and security; the consequences of the reforms were comparable with that of the worst stage of WW2, the GDP of Russia plummeted by almost 50% in 1998. Marx is credited with the conception of communism, and the phrase “Religion is the opium of the people”. History played a cruel joke: in the Soviet Union, the quest for communism became a religion. Fate showed the price of holding on to delusions and the price of ineffectual leadership. Now, the former reformists argue that the Soviet Union was a mess and they did the best that was possible. Some even credit themselves with the laurels of preventing a civil war. But the example of China proves that soft transformation is possible, it just requires a strong political will.
The USSR started to exist when laissez-faire dominated the economic policies of almost all states. Gradually, under the influence of Keynesianism, state interference in the economy was increasing, and the convergence of the two-system theory gained wide acceptance. The Soviet Union was the pioneer of many methods, and today China shows that the future of economics lies in the correct combination of a state and market economy. The experience of the USSR shouldn’t be forgotten.