Chapter 7 -USSR under pressure

• '75 - '80 growth in GNP had been 2.7%, down from 5.2% in the late '60s
• USSR imported $2billion of rolled steel, tin plate & large diameter steel piping
• USSR significantly behind western states in terms of new tech
• '79 - '82 - economic recession & oil, coal, iron & steel plateaued in growth
• Industrial decline had economic impact in E Europe - weakened communist control 
• For decades, the SU was a supplier of cheap fuel and raw materials
• Su lost ability to recieve E European goods 
• By early '80s growth in agriculture had significantly slowed
• '75 SU entered 5 year agreement with US to buy up to 8million tonnes of grain pa (droughts led to poor harvests)
• End of detente in '81 led to escalation of the arms race, adding to economic costs for SU
• By '81 growth in consumer goods was 0
• Major decline in availability of quality healthcare & rise in infant mortality
• Soviet system & communism itself failing to deliver progressive improvements in line with the W
• Richard Crockatt: "No one would dare claim in 1980 what Khrushchev had claimed in 1960: that within a decade the Soviet Union would match and even overtake the United States" 

• Gorbachev had presided over agricultural decline at the end of Brezhnev years - by '85 he was leader of the SU
• Many historians say he caused irreversible economic decline by the '90s
• Not planned - polices were activated within controlled command economy of the SU
• Command economy = central planning, production driven by output targets rather than demand, rejected innovation in management & the introduction of new ideas
• Central planning focused on large scale production of industrial goods (e.g. those related to coal & steel)
• Little focus put on consumer goods
• Economic crisis didn't cause collapse of communism - but along with Glasnost & Perestroika had a vital role
• Perestroika key to reforms - designed to improve SU's economy
• He wanted to maximise potential of existing systems rather than dismantle them. 
• Existing systems weren't working - any retention of that system would fail too. 
• Gorbachev linked economic problems to flaws in politics, ideology & foreign policy - if the economy expanded, these problems would also be resolved
• Direct link between SU's economy & its ability to remain a superpower

• Gorbachev wanted to increase production targets in light industry, machine building, food & meat & dairy products
• Between 1985 and 1986 the people involved in these areas of production were made more responsible for their production targets
• Any profits from overproduction could be plowed back into the factories
• Further control was delegated to the production factories as light industries were allowed to respond to demand for their goods
• In May 1986 a system designed to act as quality control was introduced - this was Grospryomka
• This recieved opposition from Soviet workers on a similar scale to that recieved by the alcohol campaign
• By 1988 it was withdrawn

• Gorbachev saw value in foreign investment but other Soviets thought it was crucial to protect communism
• Initially, LOJV allowed foreign ownership of no more than 49% of a business
• Extended to 100% by 1990 
• McDonald's in Moscow an example of this (27,000 applied to work there)
• Joint Ventures Law gradually ended the monopoly held by the state which allowed foreign investment to develop
• Also allowed flexibility between different enterprises & suggested that soviet businesses could enter into competition with external states in the West 
• The problem was that even though these practices were introduced, they would never be truly effective, nor would the enterprises be truly independent while a communist central planning system (as the base of a command economy) continued to exist.
• Effectiveness of Joint Ventures Law was further undermined by the state - once a business was in profit it was heavily taxed
• This reduced profits as welll as reduced motivation to grow

• This focused on state-controlled enterprises and businesses - the aim was to decentralise authority & give businesses the power to make their own decisions.
• There was to be a large reduction in state subsidies for these businesses and therefore they had to be profitable organisations selling within wholesale markets
• Enterprises would remain state owned & there was no suggestion that privatisation would be introduced
• This was an example of restructuring rather than dismantling the economic system
• The amount of independence the enterprises achieved was limited 
• The state recieved 85% of production, but managers could sell the rest to whoever they wanted
• A vague element of competition had emerged
• An important reform gave managers more control over wages
• This increased unemployment as workers were laid off to reduce costs
• Overall, the enterprise Law was an attempt to operate a command system within a market economy
• The aim of giving increased independence to promote initiative & increase productivity was sound, but the method was just a halfway house & couldn't suceed. 

• For the majority of Soviet citizens, benefits were few
• Inflation & rising prices made life very difficult.
• Gorbachev's administration faced serious problems in the late 1980s & into 1990
• In July 1989, miners at the Kuzbass coalfield went on strike - this was part of the increasing dissatisfaction displayed by workers throughout the Soviet Union
• The initial issues for the miners was low pay & poor working conditions
• Discontent quickly spread - strikes spread to Donbas mines & into Pechora & Karadanda, nearly 200,000 miners were involved in industrial action
• Miners called for an end to the communist control of the mines - they saw this as the best way to make the improvements they wanted
• Political control seen as a barrier to change.
• Miners even formed an unofficial trade union (unheard of in the SU)
• Oct '89 - Government accepts right to strike although it remained illegal in key economic areas
• Income rising faster than productivity - 1990 - incomes rose 15% whilst productivity experienced zero growth 
• Economy needed urgent reform. 

• By '89 the economy was in a reasonable condition - progress was slow but it was present
• Despite this there had clearly been a fall in living standards 
• As early as '88 Gorbachev acknowledged that the economy was changing too slowly
• March '90 Gorbachev headed a commission responsible for developing a reform package. 
• Leading economists led by deputy PM (Dr Leonid Abalkin) acted as advisors 
• The aim was to produce a rapid programme of reforms that would be in place within a month
• This ambitious target underliined the urgency of the problems but also the hurried approach that Gorbachev took
• The proposals were presented to the USSR Supreme Soviet in May
• The first move was to reduce state subsidies 
• This was the first step towards a shift to a market economy driven by supply & demand
• The immediate cost of reducing subsidies was an increase in the price of consumer goods (price of bread expected to more than double)
• Increases in costs of non-consumer goods were expected to be even higher.
• Prospects of high inflation & rising unemployment led to the Supreme Soviet calling for more restrained plans

• GNP fallen by a further 8% & national income fell by 10%
• Industrial & agricultural output had both fallen dramatically
• Exports fell by 33% & imports by 45%
• Trade with other nations in free fall
• Economic crisis complicated by growing moves towards decentralisation & rise of nationalism 
• Some republics unwilling to cooperate with planned change & they started to withold revenue
• This contributed to shortfall in national budget - planned spending on military threatened
• SU on brink of collapse - the republics increasingly determined not to cooperate with centralising of the economy & economic planning on any level

Impact of Soviet economy on the Cold War

• Undermined SU's ability to compete in Cold War environment
• Undermined economic strength of Eastern European nations
• Comecon held these economies together

• June '84 - Economic summit held in Moscow to promote intensive growth
• SU ended cheap exports of fuel & raw materials - directly caused by crisis in SU
• This forced E European states into closer ties with the West
• Dec '85 - Comecon calls for increased scientific & techical cooperation- aimed to increase productvity through innovation
• It failed - communism based on centrally planned economic development within each state
• The system isolated states from eachother - close cooperation couldn't work
• No tradition of innovation & adaptability
• Weakened ties between SU & Comecon members
• 85' - SG of Comecon (Vyacheslav Sychov) contacted Pres of EC Commission suggesting mutual diplomatic recognition (EC members could trade with individual Comecon members)
• Process concluded in June '88 (Hungary first member to trade with EC)
• Dec '89 - SU stops cheap fuel supply to E Europe (couldn't afford it)
• 1 Jan '91 - trade between Comecon members driven by market prices rather than subsidies
• Comecon formally ended 28th September '91
• Many argue that Comecon didn't create unity & its end was the final chapter in collapse of Soviet power