Perestroika and the Soviet Economy

by James Graham

On taking office in 1985 Mikhail Gorbachev faced one problem more daunting than all others combined. The Soviet economy had been in a period of stagnation for two decades and was in desperate need of reform. Gorbachev choose to adjust the old system with a period of perestroika or restructuring in the hope of making it more efficient.

The accompanying graph is confusing and perhaps even misleading but its trend is clear. This however is the Russian style and a graph of exactly the same period produced by Soviet authorities would have shown the opposite trend. The Soviet people were used to reading newspapers back to front and were not fooled by propaganda. What mattered to the people was how well stocked the shelves were and how long they had to wait in queues. On both accounts the economy was in serious trouble with shortages of even the most basic items like bread. The graph shows industrial and agricultural output declined during 1990-91 leading to a drastic fall in gross national product and national income. GNP in 1991 as a percentage of 1989 was over 20% less as was national income. By 1991 the Soviet economy had stopped declining and gone into complete collapse.

How did perestroika fail so miserably? First of all Gorbachev never planned to remake the Soviet system he merely wanted to modernise it. Minor adjustments he implemented were his attempts to discipline the work force with slogans calling for "intensification and acceleration." Slogans were nothing new in the USSR with huge posters carrying slogans present even in the countryside. This cannot be said for another of Gorbachev reforms. He attempted to curb the production and sale of alcohol. While alcoholism was a major problem in the USSR he inadvertently forced production underground. Like America during prohibition the Mafia took control and has plagued Russia ever since. Other measures introduced under perestroika were leasing land to farmers (all land was owned by the state), allowing loss making factories to go bankrupt and limited numbers of private enterprises to open. McDonalds even opened a branch in Moscow although its prices were out of reach for the average person. The most promising measure of all was a cut in state spending especially in military expenditure. The reforms while on the right track were not comprehensive enough to overcome the sluggishness in the Soviet economy. When more radical changes were made they were mostly too late to prevent the slide in the economy and often had adverse effects. This was the case with the long overdue 1991 price rises which caused panic buying of any and all goods. Perestroika was to little too late to revive the Soviet economy.

The failure of perestroika was exacerbated by Gorbachev's continual boasting about the results that the reforms would have. By publicly predicting an increase in peoples living conditions that never happened Gorbachev was unmasked as an inept planner and of being incapable of making much needed decisions. In the last years of perestroika erratic policy shifts were common with wide ranging reforms soon clamped down on. Gorbachev's failure to approve Grigory Yavlinsky's 500 day economic plan in September 1990 after much earlier enthusiasm lost him any remaining support he still had from the Soviet people. Failing to bring any significant change to the Soviet economy, Gorbachev lost the support of the people. By steering a course between the conservatives and the reformers Gorbachev alienated almost everybody leaving himself with few allies.

The Soviet economy was in decline as Mikhail Gorbachev took office and after much early hope he could not prevent economic collapse. His insistence on slow gradual economic reforms annulled any positive effects that the reforms might have had. This reluctance to introduce meaningful free market reforms to the Soviet economy lost Gorbachev the support of the people.


Collapse of The Soviet Union Series:
Introduction | Glasnost | Democratisation | Ethnic Problems
Baltic Independence | The Conservative Coup