To the outside world, the Soviet Union seemed
Slightly different in 1984 from what it had been for at least a decade. Except
for a few detractors, almost everyone agreed that the Soviet Union was the
world’s second-largest economy and, if not the most powerful military force in
the world. During that time it was producing more machinery, steel, oil, and
natural gas than any other country in the world, and its stockpiles of nuclear
and conventional weapons were at least double that of the United States.
But a considerable number of people within the system had begun to question the reality of that strength. In
early 1983, Tat’iana Zaslavskaia, who was a social scientist, wrote a detailed
study explaining the Soviet economy’s shortcomings and its upcoming inability
to compete in the sphere of technological advancements made by the Western
world. As per Zaslavskaia, the communist planning system had outlived its
usefulness. According to her, central planning was good for guiding illiterate
peasants into an industrial, urban workforce. However as the Soviet economy
became more complex, the planners could not maintain a grasp over it. The
control they had often served to stifle as much as it facilitated.
One of Zaslavskaia’s main criticisms was that the
communist system was becoming more and more redundant. Over time, the Soviet
industrial system was producing negative value: the value and the efforts put
into many production processes were more costlier than the resulting final
product. The resulting slow growth rate from the inefficiencies made it nearly
impossible to provide a better life for the working classes, which the
communist government had promised would be provided to them once an industrial
base had been built.
By the end of 1984 Mikhail Gorbachev had joined
the breed of thinkers who strongly believed that the Soviet Union’s economic
system could not continue without overhauling reforms. Although he became the
general secretary of the Communist Party of the Soviet Union in March 1985 he
had, however, called in Zaslavskaia much earlier for a discussion about
agrarian reforms and had also discussed the overall economic system.
Gorbachev later in his memoirs
described how, by December 1984, he had a strong belief “that it was impossible to live that way.”
This meant a change in the country’s political and social system and its economy. That same month, while addressing a conclave of party
officials, Gorbachev presented his thought process of what needed to be done.
Although Konstantin Chernenko was still the nominal leader of the party,
Gorbachev timed this speech to issue a clarion call for “perestroika”—or
restructuring
Gorbachev spoke of speeding and
intensifying production in the machine tool sector during the early months of
his perestroika, though the precise meaning shifted from year to year. His
vision of perestroika evolved after he was chosen as general secretary to
include taking some authority away from the ministries and Gosplan, the state
planning agency. This suggested a greater dependence on market mechanisms; at
the very least, the harsh language used to characterize the market was
noticeably softer. But other than one or two experiments, he didn't suggest any
specific steps to increase the use of markets. In reality, it occasionally
appeared as though the reverse was taking place.
For instance, Gorbachev replaced
several of the economic ministries that were shut down by creating
superministries. In turn, this led to the creation of the Gosagroprom
agricultural ministry, which became even more powerful in deciding agricultural
productivity and ultimately posed a barrier to agricultural reform. Even more
startling, the Soviet Union began a crackdown on all private trading in July
1986. Nobody could sell something that they didn't make themselves. This took them
back to the early 1930s.
Gorbachev came to the conclusion
that he was going in the wrong direction in 1987. A new regulation allowing for
private and cooperative trade as well as private manufacture was adopted in May
of that year. At first, only retirees and students were permitted to join, but
Gorbachev eventually let everyone in. At around the same time, the Soviet
authorities also declared that foreigners would be permitted to establish joint
ventures on Soviet soil. The joint ventures initially had severe restrictions
(foreigners could not own more than a 49 percent interest in such ventures),
just like private and cooperative trading. However, by 1990, foreigners might
theoretically hold all the shares, albeit none really did.
At first, Gorbachev believed
that this was a step that was too drastic, so he introduced an "Enterprise
Law" that called for a progressive decrease in the amount of control that
ministries had over company operations. Beginning on January 1, 1988, businesses
responsible for creating 50% of the industrial production of the Soviet Union
would only be needed to reserve around 80% of their output for distribution by
central planning authorities.
The Enterprise Law, however, was
a failure despite having the greatest of intentions. The managers refrained
from using their new privileges while the ministers did everything in their
power to maintain their authority. Selling independently made their life much
more difficult because there was no wholesale market to assist them in finding
consumers. Additionally, it was necessary to locate inputs outside of
established state channels in order to dispose of output outside of the central
planning process. The vast majority of managers made the decision not to switch
to the market because they felt the risks and uncertainties outweighed the
possible advantages.
Gorbachev continued in this
unsure approach, dabbling in small experiments here and there without making a
solid commitment to fundamental change. He urged economists to create a more
thorough strategy after realizing that something more extensive was required.
These plans included, to varying degrees, measures like greater reliance on
markets to determine prices, free ruble conversion into other currencies, the
elimination of subsidies for unsuccessful businesses, balanced state budgets,
privatization of trade, industry, and agriculture, monetary reform, and
demonopolization.
The Soviet Union had at least
eight such comprehensive plans between October 1989 and mid-1991, but none of
them appeared to adhere to Western ideas of what was actually required.
However, since Gorbachev appeared to be more adept at requesting fresh studies
than at carrying them out, the shortcomings of one proposal or another had
little real bearing on real-world outcomes. Gorbachev never came across a
proposal he disapproved of, but he also never found one he felt strongly enough
about to carry it out. Gorbachev would give his approval to each new plan as it
was finished. But he would also advise that it be combined with some earlier
ideas. Industry and shop managers, whether private business owners or state
bureaucrats, find it challenging to develop and put any long-term policies into
action in such a setting.
To be fair to Gorbachev, no one
has yet figured out how to successfully switch over in a reasonably short
period of time from a Stalinist, centrally planned economy to a market-oriented
one. The Soviet-style system evolved in quite different ways: the market
shrank, pricing changed, people were reluctant to take initiative, and gaining
money started to be seen as illegal and antisocial behavior. Furthermore, the
government consciously established monopolies to avoid duplication.
This harm is difficult to
reverse. Some nations, like Poland, have experimented with "shock
therapy"—doing everything at once, including shifting to a market-based
system of pricing, enabling currency reform, maintaining budget subsidies, and
denationalizing and privatizing agriculture, business, and services. Others claim
that the population is overburdened by moving too quickly. The employment of a
more gradual strategy is also criticized since it enables the reformers'
detractors to unite against them and put them down before they have a chance to
triumph. In addition, the market system is designed to be a complete solution.
For instance, if there is no price flexibility, subsidies will very certainly
be required. Budget shortfalls as a result of this will lead to inflation.
Changing from a planned to a
market system is difficult, in other words. The transition from a market to a
planned system has been compared by Joseph Berliner and Kenneth Boulding to a
forester clearing a forest. Even though it is harmful, the process is
manageable if enough force is used. The opposite, however, is far trickier to
do. It takes more than a few trees to create a forest. An entire ecological
system of creatures, insects, and undergrowth exists in a forest. The same
holds true for permitting a few private businesses to open.
Gorbachev was aware of his goals. Prior to losing power
in 1991, his issue—and actually, one of the main causes—was that he wasn't sure what he wanted to transition to. Furthermore, he
and all other leaders to date appear to be unable to execute that shift. Perestroika may not take centuries to implement, but it is likely to be a
difficult and painful process.