Chapter 7 -USSR under pressure

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Condition of Soviet economy

  • '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" 
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Economy under Gorbachev '85-'90

  • 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
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Industrial efficiency 1985 - 1987

  • 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
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Law on Joint Ventures: January '87

  • 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
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The Enterprise Law: January 1988

  • 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. 
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Worker's discontent

  • 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. 
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Economic reform plans 1990

  • 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
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Position by '91

  • 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
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The Collapse of ComeconM

  • 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 
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