Fall of the USSR: Economy

  • Created by: indiamxe
  • Created on: 30-03-19 14:35

Long-Term Economic Weaknesses

  • Soviet economy was essentially a command economy
    • under Stalin, this was successful
    • the 1st 5YP led to Russian industrialisation
    • 1945: Russia's economy was the fastest growing in the world at 7.1% annually
  • However, under Krushchev there was economic decline
    • 1958-63, ecnomic growth fell to 5.3%
    • the USSR had been competing in an arms race since 1945 which cam at a great cost
  • Brezhnev...
    • 1970's annual growth was down at a 2% average
    • by 1980, it had dropped to 0.6%
1 of 11

Fundamental Weaknesses

  • No incentives for work or innovation
    • low labour productivity
    • Russia's top 10% richest were only 3x richer than Russia's poorest
  • Waste
    • Gosplan rewarded quantity over quality
    • 1980's Gosplan ordered 400k tractors to be made
      • 20% of them were never used
  • No modernisation
    • storage was poor and resulted in grain rotting
    • hard to transport food due to poor transport infrastructure
    • agriculture lacked sophisticated machinery
      • over 25% of Soviets worked on farms vs. 4.6% in the US (who were more productive)
  • Centralisation
    • farming was controlled by the government
      • wrong fertilisers often sent at the wrong times etc.
      • farmers could not use their expertise to schedule harvests
    • 1956-80 sugar production increase of only 28%
2 of 11


  • Rationalisation 1985-86
    • initial economic reforms
    • led by the communist party
    • designed to stimulate, economic modernisation & higher rates of growth and production
  • Reform 1987-90
    • reforms intended to introduce market forces
    • concurrently initiated political reforms designed to build support for greater economic change
  • Transformation 1990-91
    • Gorbachev began to abandon the fundamental aspects of the system such as single-party rule and the command economy
    • the party lost control of the process
  • Outcome
    • failed to increase economic growth
    • economy actually stopped growing and started to shrink
3 of 11


  • May 1985 - Gorbachev reduced state-run factory alcohol production by 50%
    • 55,000 party members assigned to a task force to stop the illegal production of alcohol
  • Alcohol consumption 2x 1960 rate in 1987
    • 4.5 million registered alcoholics
  • Illegally produced alcohol more popular and so the government made less money
    • government alcohol revenues dropped by 67 billion roubles
  • Campaign abandoned in 1988
4 of 11


  • An economic initiative designed to end economic stagnation
    • increase in investment to modernise the Soviet economy
    • predicted a 20% increase in industrial output in the next 15 years
  • Outcome: a failure
    • a decline in the price of oil
      • $70 for a barrel of oil in 1981 to $20 in 1985
      • soviet revenues dropped by more than 2/3
    • Gorbachev had to finance acceleration by borrowing western money
      • government debt at $27.2 billion in 1988
    • Gorbachev ignore advice and invested in energy production rather than high-tech machinery
    • acceleration created an economic crisis
5 of 11

Partial Market Reform

  • Law on Individual Economic Activity, 1986
    • legalised individuals and families making profit from small-scale work
  • Law on State Enterprise, 1987
    • intended to devolve power from central government to factory management
    • it failed in two ways
      • devolved very little power as Gosplan found ways to retain control
      • the ability to charge higher prices meant that the government had to pay more for good - government debt increases
  • Law on Co-operatives, 1988
    • large scale private companies legalised
    • by 1990 nearly 200,000 co-operatives had been set up
    • incomes of co-operative members higher than state-employed workers
  • Gorbachev increased restrictions on Gosplan and it was eventually abolished in 1990
6 of 11

Problems with the Market

  • Gorbachev hoped to combine the best features of the market with the best feature of planning
    • the new market did not function properly and created more issues
    • government subsidised prices allowed consumers to buy products much below market value
    • free market goods were less popular as they were more expensive
    • 'price-capping' made production uneconomic and caused co-operatives problems
7 of 11

500 Day Programme

  • plan to minimise the negative impact of the transition to market economy
  • widespread privatisation and marketisation proposed
  • government did not adopt a proper plan as Gorbachev was too indecisive 
8 of 11

Economic Chaos and Politics

  • Reform resulted in no effective ways of distributing goods and shortages of essentials increased
  • enough grain but no system to export it
  • Gorbachev's approval ratings fell and strikes increased
    • 1991, 1,755 enterprises affected by strikes
  • faith in the government fell and nationalist support increased
9 of 11

Reform and Collapse, 1991

  • 1991, the Supreme Soviet introduces private property
  • in April, citizens could trade stocks and shares
  • the economy continued to decline
  • oil production down by 9%
  • by the summer of 1991, the Soviet government were effectively bankrupt
10 of 11

Economy - overview

Khrushchev - decline

Brezhnev - stagnation

Gorbachev - collapse

  • The USSR's economic weaknesses were heightened by excessive arms spending
  • free markets will almost always outperform command economies in the long run
  • the decision to collectivise and to introduce a command economy created an insufficient economic system
  • economic collapse = political collapse
11 of 11


No comments have yet been made

Similar History resources:

See all History resources »See all Russia, 1917-91: from Lenin to Yeltsin resources »