Conclusion

The long collapse of the Soviet economy did not end with the dissolution of the USSR. Governments quickly changed, but the infrastructure of the Soviet economy did not. From the metalworks of Magnitogorsk to the nickel mines of frozen Norilsk, the economy bequeathed to modern Russia by Stalin, Khrushchev, and Brezhnev was only slowly changed. Not all of that inheritance, of course, was harmful. The USSR invested heavily in schooling, for example, leaving a population significantly more educated than might have been expected. Yet much of the Soviet legacy is far less positive. Few of the manufacturing industries so celebrated by the Soviets are profitable today, and almost none are at the forefront of modern technology. Russia today has over a hundred ...

Fiscal Crisis, the Tiananmen Option, and the Dissolution of the USSR

This chapter examines the growth of the Soviet budget deficit from 1989 through 1991. The government plugged the increasingly large hole in its budget by printing money. This caused a surge of inflation that made economic mechanisms ground to a halt. The security services, backed by allies in heavy industries and collective farms, sought to resolve the problem by emulating post-Tiananmen China. They launched a coup in August, 1991 to reestablish authoritarian rule. The coup leaders hoped this would provide the power they needed to balance the budget. In fact, the subsidies that flowed to the military and other interest groups were the main cause of the budget deficit. The putsch could only have succeeded in resolving the country’s deficit if the new leaders cut spending on the military, farms, and heavy industries—the very groups that supported the coup. That was never a plausible outcome. Lacking fresh ideas to resolve the country’s economic crisis, the coup collapsed and the USSR hurtled toward disintegration.

Gorbachev’s Gamble

This chapter discusses the political challenges that Gorbachev faced while devising policy during the late 1980s, and highlights the role played by economic interest groups, including the farm lobby, heavy industries, and the military industrial complex. These lobbies dominated economic policymaking and constrained Gorbachev’s ability to implement his desired policies. The chapter describes the political base of each of the major interest groups, and assesses their goals in shaping economic policymaking. Each of these groups, the chapter notes, had strong economic reasons to oppose Chinese-style reform.

Introduction

Amid the thousands of protesters who assembled on China’s Tiananmen Square in May 1989, just weeks before the Chinese government sent troops to crush the demonstrations, one person held a placard that declared: “We Salute the Ambassador of Democracy.”1 The envoy that this protester saluted was neither an activist, nor a dissident, nor from a country renowned for human rights advocacy. It was Mikhail Gorbachev, general secretary of the Communist Party of the Soviet Union. The type of democracy he offered was not Western-style liberal capitalism, but market socialism. Chinese students took trains from far-flung provinces just to see him....

Of Subsidies and Sovkhozes

Gorbachev is often criticized for ignoring agriculture in his reforms. In fact, as this chapter shows, Gorbachev was an agriculture expert and sought to implement Chinese-style reforms to give individual households control over farm land. Gorbachev argued that China’s experience showed that private ownership improves agricultural productivity. Nonetheless, political conflict constrained Gorbachev’s ability to adopt Chinese-style agriculture reforms in the USSR. The agro-industrial lobby, which was represented by provincial leaders and by top Politburo officials in Moscow, stubbornly opposed decollectivizing farmland and cutting subsidies. Decollectivization would have benefitted farmers, but reforms threatened farm managers and the fertilizer and tractor industries. By 1991, Gorbachev finally succeeded in pushing through structural reforms, though opposition had managed to stall reform for five years and demanded higher subsidies that left a massive hole in the Kremlin’s budget.

A Soviet Shenzhen?

This chapter addresses the Soviet Union’s approach to foreign investment. In the early 1980s, the USSR was skeptical of foreign capital. Poland’s debt crisis in the 1980s seemed to prove Marxist-Leninist ideas that foreign capitalists would undermine socialism. Hence Gorbachev’s early reform concepts had little to say about attracting investment. Only after China’s success in using foreign capital to develop its industrial base did Soviet policymakers begin to take another look. By the late 1980s, the Kremlin began replicating the techniques that China used to attract foreign capital, including creating Special Economic Zones, territories in which foreign businesses were given special incentives to invest. Despite bureaucratic opposition, Gorbachev and his allies explicitly copied China’s special economic zones when devising proposals to create similar institutions in the Soviet Far East.

Take Off or Leap Forward?

China and the USSR had been stark ideological opponents throughout much of the Cold War as they feuded over the meaning of Marxism-Leninism. In the early 1980s, however, their relationship rapidly changed as Soviet intellectuals realized that Deng Xiaoping was transforming China’s economy. This chapter examines Soviet economists and analysts who visited China, studied the changes underway, and reported on China’s new policies to top Soviet leaders.

Asian Pivot

This chapter explores the meaning of ‘economic reform’ in the USSR. Many scholars have suggested that ‘the idea of the West’ was a significant driver of Gorbachev’s policies. That may have been true in domestic policy, but this chapter shows that during the 1980s, Soviet analysts—like their American colleagues—believed that the Western economic model was being eclipsed by Asian competition. In the USSR as in the West, the 1980s were the decade of ‘Japan as Number One’. This chapter examines why Soviet analysts believed the West was in decline. It concludes by noting Gorbachev’s personal interest in Asian development models—and in China in particular.

Soviet Industry, Sichuan Style

This chapter shows that China’s experience played an important role in Soviet debates about restructuring enterprises. Many of Moscow’s reform efforts, such as the demand that enterprises become self-financing, and the decision to let individuals start small businesses, mirrored Soviet understanding of Chinese practice. Using documentation from Soviet research institutes and from Politburo meeting notes, the chapter shows that Gorbachev struggled to change Soviet economic policy. Conservatives managed to delay Gorbachev’s initiatives, sometimes for several years. When confronted with conservative opposition, Gorbachev often cited China’s successes as evidence that his reforms would also boost growth. However, after much delay, Gorbachev succeeded in pushing through reforms that were as radical as China’s, creating a private sphere and de facto privatizing many firms.