Author:
GAIDAR Egor T. Topics: Countries / Politics
01.02.2007
A LESSON TO START WITH
The post-imperial nostalgia that, word has it, is preying on Russian minds these
days is not a Russian invention. History has seen it many times. The Soviet
Union was not the first empire to break apart in the 20th century. It was the
last. No nation that used to style itself an empire at the start of the 20th
century survived to its end. I must add here that, in many critical respects,
Russia was not like traditional empires ruling their overseas possessions. The
argument over whether or not it was an empire in the Roman tradition could go
on interminably. Nor will there be an end to writings trying to show that
Russia was unique in its own way, that ethnic Russians under the tsars and
Bolsheviks were left with the role of donors for the state
’s outlying areas; that the Russian heartland provided the livelihood and
sustained the viability of the fringe areas Russia had overrun, rather than the
other way round. That could probably be the reason why the Russian empire fell
decades after other empires had gone.
The country’s elite in the tsarist centuries regarded Russia as an empire. And they called
it that. Today, too, the
“imperialists” are evoking a heritage traced from Russia under Peter the Great through decades
of Soviet history to the present day.
When Peter the Great invested himself with the title of Russia’s Emperor, he sent a signal to the rest of the world that Russia had become a
great European power. Greatness and imperial grandeur were synonyms in his
time.
For all the abuse of the term “empire” in political bickering going on around, you will not find an accepted
definition that makes sense in today
’s context.
I will venture then a self-made definition that is, in my understanding, the
nearest thing to what we now have.
In this Outline, Empire is a formidable poly-ethnic state structure in which
supreme powers are held by the central authorities, without a single democratic
institution (if any ever existed, at least such as voting rights) active across
its territory.
The 20th century brought out the differences in challenges facing the two
different types of empire: overseas empires[1] (Great Britain, the Netherlands,
and Portugal, for example) and territorially integrated empires
(Austria-Hungary, Germany, and Russia, above all). Colonies were not separated
by sea in the second group. Rather, the ruling and ruled ethnic groups lived
side by side in close cooperation.
The lesson of the 20th century was that all empires fall apart, sooner or later.
Memories of grandeur live on. Post-imperial nostalgia is a political reality of
democratic countries with universal suffrage.
“Restoring the empire for the benefit of the people” is a catchphrase that can win a measure of popularity even. The trouble is you
cannot reassemble an empire that has crumbled to dust.
Rather an exception than the rule was restoration of the Russian Empire in a
different, almost unrecognizable form under the communists in 1917 to 1921. So
different indeed was its form that a true scholar would only use
“restoration” with reservation. The U.S.S.R. arose from the fratricidal civil war, terror the
world had never known, and the death of millions.
Restoration of empires is unfeasible for reasons deriving from long-term trends
in socioeconomic development. Policymakers, though, continue to think (and act)
differently long afterward. Here lies the explanation for the former ruling
nations
’ unrealistic, indeed erroneous, moves in their relations with countries they
used to control.
The unexpected speed with which seemingly impregnable empires collapse gives a
sense of unreality to anything going on around.[2] Unreality is akin to
irrationality where wonders are bound to happen. Little effort is required to
convince society (waiting to be persuaded) that a state that has expired for
uncertain reasons can arise from the ashes just as inexplicably. This is an
illusion, and a dangerous one at that. Rivers of blood spilt during the Second
World War were the price humanity paid for it.
***
The Soviet Union was, in fact, a territorially integrated empire, one of the
world
’s superpowers. The possibility that it could come down in the space of three
years, 1988 to 1991, was dismissed by almost everybody just a few years before
it happened. Following the demise of the U.S.S.R., over 20 million ethnic
Russians found themselves stranded beyond Russia
’s borders. The elites in a majority of countries where the Russian expatriates
now lived, lacked the tact and commonsense to deal adequately with the problems
facing those people, now ethnic minorities in countries they had called their
home. This fact, too, adds force to the post-imperial syndrome, one of the
hardest problems plaguing Russia these days.[3] This is a very dangerous
malaise. Russia is actually going over its crest. Surgeons know that a man
lives on long with pain in the leg they have amputated. They call it phantom
limb pain. Post-imperial sensations fall into this category, too,
The death of the U.S.S.R. is very real. Reality and social anguish inflicted by
the separation of families, adversities experienced by compatriots abroad, and
nostalgic memories of recent grandeur and the familiar geography of the
homeland, lopped off brutally at the margins to a size and shape difficult to
accept. It takes little effort to earn political capital on this anguish.
This is a powerful, and very dangerous, political weapon. It is used rarely
because people who turn to it are known to end badly. Leaders who pick it up
lead their nations to disaster. It is Pandora
’s box that has, regrettably, been pried open in Russia in recent years. Stoking
post-imperial nostalgia, nationalism, xenophobia, with anti-Americanism long a
staple here, and even newfound anti-Europeanism are now in vogue, with all the
makings of a norm.
I would not waste my breath to write it all up had I not realized the danger of
the post-imperial syndrome being played up in Russian politics, or seen the
obvious, striking analogies between the rhetoric capitalizing on post-imperial
analogy in this country and the propagandistic approaches that the National
Socialists applied in late-Weimar Germany.
Many draw parallels between Russia and the Weimar Republic. Not so many,
however, appreciate their significance. Few seem to be aware, for example, that
imperial symbols were dusted off and returned to their place in Germany in
1926, eight years after the empire
’s collapse,[4] and in Russia in 2000, nine years after they were overthrown. Who
knows that the Nazis
’ loudest economic battle cry was their promise to give the bank deposits the
German middle class lost to hyperinflation in 1922 and 1923 back to their
owners.[5]
The role of the Nazis’ economic demagoguery following their installation in power in 1933 is difficult
to underestimate. Anti-Semitism, radical nationalism, and xenophobia were
natural elements in the groupthink of the leaders of Germany
’s National Socialist Party. And yet, they exercised caution, not putting those
elements to work until 1937.[6] Stirring up the feelings of burghers who lost
their savings during the 1923 hyperinflation was by far a more effective
political weapon.
Promises to repay savings devalued in the wake of the Soviet Union’s financial meltdown are reminiscent, word for word, of Goebbels’s bluster in the early 1930s.
Contrary to this author’s apprehensions, the post-imperialist syndrome leavened with radical nationalism
in Russia came a pretty long while after the disintegration of the U.S.S.R.,
rather than on its heels. My colleagues and I, who launched Russia on reforms,
realized that pushing Russia toward that free market, adjusting it to its new
role in the world, and reconciling it with the existence of new independent
nations would be a bumpy ride. We expected, though, that as the country emerged
from its recession brought on by transformation, economic growth picked up, and
the population
’s real incomes started to climb, the delusive dreams of the empire born again
would give way to concerns about personal welfare. We were wrong.
Now we know that, with the country struggling in a profound economic crisis and
everybody
’s mind preoccupied with the thought of earning enough to support the family till
next payday, if it came at all, unless you were given the boot, most people had
imperial grandeur at the back of their minds. When, however, things started
looking up and the threat of unemployment receded (unless you happen to live in
a depressed area), when everybody saw life improving and falling back into its
concrete mould, the hankering for old songs intensified.
Falling back on the symbols and signs of former grandeur is a mighty trick to
manipulate politics. Attempting to make Russia an empire again is putting its
existence out on a limb. Disregarding this gruesome prospect, certain political
forces are trying to herd this country exactly in this direction.
The legend of a prosperous and powerful nation gradually hacked down by its
conspiring enemies is not a sweet romantic tale; rather, it is a hollow
political myth that holds many hazards for this country. Showing how far this
myth is removed from reality is, in fact, the purpose of this paper.
THE “CURSE OF OIL”
In 1985 and 1986, world prices of oil tumbled to their lowest point ever. And
yet, the U.S.S.R. did not fold up because of its bearish play on the oil
market.
I could not find a better, or more concise explanation, than this short verse
that Russian bard Bulat Okujava recited at his last one-man show in Paris on
June 23, 1995:
History tells us kingdoms fall,
Not because people live in thrall…
Kingdoms only break apart
‘Cause no one for them has a heart.
Not because people live in thrall…
Kingdoms only break apart
‘Cause no one for them has a heart.
The crisis in the Soviet economy that ultimately erupted in the breakdown of the
U.S.S.R., the how, the when and the form in which it was played out, was
closely bound up with developments unfolding in the oil marker.
How, then, did it actually come about?
***
A LESSON IN CONSPIRACY
The simplest explanations that were offered put the crash down to conspiracy.
Living in the U.S. at the time, I saw with my own eyes what an improbable
“surprise” the Soviet Union’s collapse was for the American authorities, and how shaken they were by the
news, and I don
’t accept one bit of the conspiracy theories.
If we assume that the “malicious design” theory was right, the picture looks even grimmer. It speaks of the low
intellectual standards, irresponsibility, and betrayal of national interests by
several generations of Soviet leaders who made the country
’s economy and survival hostage to decisions made in the U.S., which they saw as
their main potential adversary.
***
The U.S.S.R. was neither the first, nor the only country rich in natural
resources to stumble into a major crisis precipitated by unpredictable
fluctuations in prices for their key commodities.
To gain a better perspective of what happened in the Soviet Union in the late
1980s and early 1990s, it will be useful to dig into problems caused by
commodity price fluctuations to see how they affect the economies of exporting
countries. We will have to go a long way back into history to find an answer
….
SPANISH LESSON
The first, and best-studied, example of the effect of heavy cash flows from
natural resources on a country
’s economy was provided by Spain in the 16th and 17th centuries. The discovery of
America, the operation of gold and silver mines, new, efficient mining
technologies
– the best possible at the time – cleared the way for an unprecedented increase in the influx of gold and silver
into Europe.
Growth in the supply of gold and silver to the slowly growing European economies
led to sharp price spikes.[7] Prices were rising faster in Spain, where the
precious metals made their first landfall, than in other European countries.[8] High prices for Spanish farming produce put that country
’s farmers at a disadvantage in competition with producers in other European
countries.[9] Castile, Spain
’s core region, became a major importer of foodstuffs for many decades. Spanish
weavers were in the grip of a crisis as well, because of abnormally high prices
for textiles kept up by a heavy influx of precious metals from America.[10] Gonzalez de Cellyrigo, who explored Castile
’s economic woes in 1600, linked them to the after-effects of the discovery of
America; he wrote that the impact of inflows of gold and silver paralyzed the
growth in investment, and the development of manufacturing, agriculture and
commerce. He showed that the discovery of America was a stroke of ill luck for
Spain.[11]
The role of unearned income from precious metals in the Spanish crown’s budget, still modest in the mid-16th century, was steadily growing. Outside
the control of the Cortes, (the country
’s parliament), those revenues gave more freedom of action to the government in
expending its finances. Besides, American gold and silver looked attractive as
security for the loans that international banks were only too eager to provide.
By the standards of the age, over a half of budget revenues in agricultural
societies was spent on military needs. American gold and silver provided the
wherewithal for proactive foreign policies to uphold Catholicism and enforce
Spain
’s domination in Europe by funding a succession of costly wars.
In the late 16th century, the influx of precious metals from America thinned
out. By 1600, it was obviously clear that the rich silver mines in Spain had
been depleted. In real terms, Spain
’s budget revenue takings were undercut by prices that had gone up significantly
since the start of gold and silver mining in America.
Notwithstanding, the crown assumed huge commitments on loans, far in excess of
annual additions to its coffers. A long succession of bankruptcies, a scourge
of Spanish finances from1557 to 1636, followed.
As often happens, the authorities’ response to erratic earnings from natural resources was hysterical and
ill-considered. Spanish students were forbidden to go to foreign universities,
monopolies were enforced to curb trade, taxes were raised on wool exports,
which started slipping in world markets, and customs duties were levied at
provincial border crossings; all weakening the Spanish economy
’s capacity to finance military actions as a way of fulfilling the government’s foreign policy ambitions.[12] On top of it all, imperial commitments were
easier to undertake than to abandon, even in the face of inevitable default.
The history of Spain in the 16th and 17th centuries was the story of a world
power that crashed without being defeated on the battlefield, buckling under
the weight of its excessive ambitions resting on nothing more solid than
revenues from American gold and silver.
A LESSON NATURAL WEALTH CAN GIVE
It has long been almost an axiom that rich natural resources, including the
minerals a country needs to press on with industrialization, and vast expanses
of fertile lands were an important, favourable factor for advance. We know now
from the experiences the world has gone through in the 20th century that this
linkage is, unfortunately, more complex and more dramatic.
Between 1965 and 1998, GDP per capita in mineral-rich countries such as Iran and
Venezuela was contracting at an annual rate of 1%. It was 2% in Libya, 3% in
Kuwait, and 6% in Qatar (in 1970-1995). Overall, GDP per capita in OPEC members
was falling at 1.3% a year in the period 1965 to 1998, against the average
annual growth rate of 2.2% in countries with low and medium showings of GDP per
capita.[13]
The last few decades have seen publication of a spate of studies into the effect
of mineral wealth on economic growth.[14] They all illustrate a statistically
significant negative correlation between long-term economic growth rates and
mineral wealth.[15] To put it in simple words, availability of natural wealth
is not a ticket to an affluent future
– rather, it turns going there into a rough ride.
A LESSON FROM NIGERIA AND UFA
Nigeria offers a textbook example in this long succession of sorry failures.
Large oil fields there went into production in 1965. In the 35 years that
followed, the aggregate revenues, less incomes repatriated by international oil
corporations, reached nearly $350 billion in 1995 prices. In 1965, oil
generated $33 in income per capita, for $245 in GDP per capita. By 2000, oil
produced $325 in earnings per capita, while GDP per capita remained frozen at
the 1965 level
– the revenues had no effect on the standard of living.[16]
There is a standard selection of risks related to rich natural wealth. Natural
resources and related opportunities to derive unearned income, allow the
authorities of a country blessed with the godsend to multiply budget revenues,
caring little about raising general taxes[17] (see: Table 1).
Table 1
Oil revenues as a share of total budget takings in Venezuela, Mexico, and Saudi Arabia in 1971–1995. Five-year averages, %
Oil revenues as a share of total budget takings in Venezuela, Mexico, and Saudi Arabia in 1971–1995. Five-year averages, %
Sources: Calculated from Auty R.M. (ed.). Resource Abundance and Economic
Development. Oxford: Oxford University Press, 2004 (Mexico and Saudi Arabia);
Salazar-Carrillo J. Oil and Development in Venezuela during the Twentieth
Century. Praeger Publishers, Westport, CT, 1994 (Venezuela).
These figures only mean that the authorities see no need to entering into a
long-term dialogue with society
– taxpayers and their representatives. The historic dialogue (leading to
compromise) that alone clears the way to a system of institutions that put
constraints on the authorities and enforce safeguards for civil rights and
liberties. No matter how hard, this kind of dialogue lays down the rules of the
game that foster modern-day economic growth.[18]
On the whole, the chances of developing a system of checks and balances
(extremely popular during Yeltsin
’s tenure and lately fallen out of fashion) and reliable institutions curtailing
corruption and restraining injustices committed by the authorities and
officialdom are always slimmer for the populations of countries with a glut of
natural resources than in those that have been passed over by fate.[19] They
have a different atmosphere. And a different climate, too.
The Russian 19th century writer, Saltykov-Shchedrin, gave a classical
description of such an atmosphere:
“When the bureaucrats were carving up western provinces first, and then proceeded
to Ufa, we witnessed truly amazing scenes. NOTHING, IT SEEMED, COULD BE
SIMPLER: SNATCH YOUR PIECE OF THE FREE PIE AND SCARPER! No, though, it was
right there that a catfight broke out, hatreds were stirred up, mockery and all
manner of shame-faced farce played out, all targeted on
– alas! – the giving hand that was put on the carve-up expressly to placate the gentlemen
office holders and, understandably, to lay the foundations for a corporation of
the content.
”[20]
***
A LESSON IN CORRUPTION, OR A CORPORATION OF THE CONTENT
There are plenty of indexes and estimates from international economic
organizations that measure the quality of national institutions. They all share
a common flaw, or rather a common characteristic
– they are all biased.
And yet, they are not without a value: they show that there is a strong negative
feedback between political liberties, civil rights, quality of the bureaucratic
machinery, and practical law enforcement, on one hand, and а country
’s resources, on the other.[21]
The revenues generated in the economies of re-source-rich countries are
distributed at the authorities
’ whim.[22] If this is a way to stimulate competition, it is not a race between
producers to manufacture more goods of better quality at the lowest reasonable
cost; instead, they are competing in hand greasing skills and lobbying for
their interest. Put another way, they are contributing to the growth in what A.
Krueger called administrative income
in her matchless study.[23]
A wealth of resources elevates, unavoidably, the risks of political instability
associated with the infighting for its reallocation.[24] (No wealth no cause to
fight?)
No count is possible of nontransparent, uncontrolled, and wasteful pork-barrel
projects and transactions initiated by state companies to pursue economically
nonsensical but politically lucrative projects in Indonesia, Mexico, Venezuela,
and many other countries rich in natural resources. This is a well-documented
truth. It was also true that the government was forced to repay the foreign
loans raised to finance those projects from its budget, sooner or later.[25]
World experience indicates that it is more difficult to create democratic
institutions in countries where natural resource income is a major factor than
in countries free from it.
A LESSON IN DUTCH DISEASE
A problem deriving from natural wealth is that unearned incomes in the natural
resource sector complicate growth in other economic sectors. It is described in
detail with reference to the effect the discovery of large gas fields in the
1960s had on manufacturing industries in the Netherlands, and even got the
nickname of Dutch Disease.[26] In fact, the Netherlands dealt with the disease
more successfully than a majority of other resource-rich countries. The disease
has long been ravaging other countries, but the original name remains. It could
well be named after Venezuela, Nigeria, Indonesia, or, more recently,
Russia.[27] If we remember commodities other than oil, we could call it Zambian
or Zairean disease (because of the copper they depend on), or Colombian disease
(because of coffee).
In essence, Dutch Disease sets in when unearned incomes originating in commodity
producing industries stimulate demand for goods and services produced in other
industries that are not confronted with international competition. As a result,
wages and costs grow in the resource sector and in other industries. Average
prices in a national economy depend on GDP per capita. The more developed a
country is the higher average prices are. With this factor counted in, the
statistical dependence of national prices on resource wealth has been upheld
convincingly.[28]
Industries facing international competition are forced to raise wages, losing a
portion of their profits in the domestic and foreign markets.[29] Hence the
risks of running an economy that is only lightly diversified and increasingly
depends on fluctuations of prices for natural resources.
The authorities in all resource-rich countries are notorious for their scant
attention to public education. The reason is difficult to identify, but many
researchers attribute it to the quality of labour required by mining
companies.[30]
Or, perhaps, the reason lies in the psychology of elites cropping up in those
countries, the kind Syltykov-Shchedrin called fly-by-nights who give no thought
to the future, or to education, which is investment in the future.
CRACKS IN THE FOUNDATION. THE SOVIET UNION IN THE 1980s
STABLE INEFFICIENCY
Toward the end of Leonid Brezhnev’s tenure, an overwhelming majority of Western observers (and leading Soviet
experts), who interpreted trends they spotted in the U.S.S.R., were certain
that the Soviet economic and socio-political system was inefficient and losing
momentum, but was stable and sustainable.
The Brezhnev age was a period of social stability. The incidence of public
riots, which the authorities quelled by armed force, declined. Between 1963 and
1967, there was recurrence of social unrest, which forced the authorities to
use troops against rioters in Sumgait in 1963, and in Chenghen, Frunze, and
Stepanakert in 1967. As the Brezhnev age came into its own, the authorities
learned to minimize the risk posed by anti-government protests. Seven of the
nine mass protests were staged in the years of Brezhnev
’s rule, and none was registered between 1969 and 1977.
Armed force was used to suppress eight out of the 11 riots that occurred during
the years of Khrushchev
’s rule, 1957 to 1964, while under Brezhnev, the authorities sent troops against
the protesters on three out of nine occasions. Beginning in 1968 right up to
Brezhnev
’s death in 1982, armed force was not used even once to quell unrest. The regime
learned to pass up violence and quash dissent without a bullet being fired.[31]
The country’s transformation was, apart from anything else, a force that pushed the
authorities to improve the efficiency of their political control. The
information environment changed radically between the early 1950s and the
mid-1980s. A mere 2% of Soviet citizens had shortwave radios in 1950. By 1980,
up to a half of the country
’s population had gained access to shortwave broadcasting. The Soviet leaders
took every step possible to make domestic radio manufacturers turn out
receivers that blocked reception of Western programmeming and ordered jamming
of Western broadcasts.[32] By the early 1980s, however, the world of fully
managed information had become a thing of the past. Information-hungry Soviet
citizens could obtain information about the world around them from sources
other than state-controlled channels.
Tape-recorders came into wide use, and video was making its first steps.
The authorities realized that “Western radio propaganda is the most critical among all other factors. … An analysis of available materials reveals interest toward foreign broadcasts
spreading among young people.
” According to a survey of “Western radio audiences in Moscow” conducted by the applied social research department of the Academy of Sciences’ Institute of Contemporary History, 80% of university students and around 90% of
senior class students of secondary, vocational, and technical schools listened
to Western radio broadcasts more or less frequently. Listening to foreign radio
broadcasts developed into a regular habit (32% of university and 59.2% of high
school students listened to foreign radio broadcasts at least once or twice a
week).
***
In the 1930s through the 1950s, economic growth was achieved in the U.S.S.R. by
drawing off resources from agriculture into manufacturing. The rural areas
supplied most of the labour needed at manufacturing enterprises either under
construction or in operation. The share of capital outlays in GDP was
inordinately high. Proceeds from exports of farming produce in the 1930s were
used to import large quantities of packaged industrial equipment. In the late
1940s through the 1950s, the existing industrial potential, and strained
relations with the West, stimulated a rise in the share of domestically
produced equipment for new manufacturing enterprises.
In its development model, the socialist system focused on continuous
construction of more and more large enterprises. The shortage of free hands
reduced their efficiency considerably. The influx of labour into manufacturing
diminished significantly in the 1960s. It was not easy to step up investment to
make up for needed labour in the socialist system. Fine-tuning investments to
improve the use of existing manufacturing capacities was not among its
strongest sides. Toward the late 1960s, this truth had dawned on people writing
speeches and reports for top party officials.[33]
Realization of growing problems caused by the inefficiency of the Soviet economy
induced the country
’s leaders in the mid-1960s to attempt economic reforms. The joint resolution
adopted by the ruling party
’s Central Committee and the nation’s government on October 4, 1965, purported to give enterprises broader
de-cision-making powers, increase the share of funds they could retain to
develop production and pay incentives to employees. It aimed to introduce a
remuneration system in which wages were linked to personal inputs and
performance of enterprises as a whole; to promote direct ties between producers
and consumers on the basis of direct financial liability, and to give a greater
role to profit in employee stimulation.[34]
This programme was more cautious than its counterpart already completed in
Yugoslavia, or one under way in Hungary, or that undertaken in China in years
ahead. And yet, it was the last serious attempt to be undertaken to change the
management system in the Soviet economy and clear the way for free-market
mechanisms dismantled at the turn of the 1930s, before the socialist system
started sliding into a deep crisis. It is hard to tell for certain whether or
not those reformist efforts were behind the high economic growth rates in the
five years, 1966 to 1970, the fastest scored in the remaining two decades of
the U.S.S.R.
Examples of how inefficient the Soviet economy was are well known. The Soviet
Union mined eight times as much iron ore as did the U.S., which it cast into
three times as much pig iron, which was processed into twice as much steel. In
gross value, it produced about as much machinery from that metal as did the
U.S. The U.S.S.R. used 1.6 and 2.1 times as much raw materials and electric
power to produce a unit of end output as did the U.S. It took more than ten
years to build an industrial enterprise in the U.S.S.R., compared to less than
two years in the U.S.[35] In terms of a unit of end output, the U.S.S.R. used
1.8 times as much steel in 1980 as did the U.S., 2.3 times as much cement, 7.6
times as much mineral fertilizer, and 1.5 times as much timber.[36] The
U.S.S.R. manufactured 16 times as many grain harvesters as did the U.S., but
garnered significantly less grain and depended on grain imports.[37]
Soviet leaders had frequent brain waves to carry through giant, ambitious, and
economically dubious projects. When the country started importing foreign grain
in 1963, Khrushchev urged for a return to the abandoned project to build a road
from Komsomolsk to Sakhalin Island.[38] Many projects that were completed at
considerable investment proved inefficient or made no sense at all. Land
improvement was a typical example, which pulled in more investment than the
textile and leather industry. Between 1986 and 1996, 35,000 digging machines,
32,000 bulldozers, 10,000 heavy wheeled tractors, 4,400 tractor-trailers in the
10-ton class or larger, 22,000 scrapers, 6,300 truck-mounted cranes, and much
else were to be manufactured for use on land improvement projects.
All newspaper boards, radio and television stations, filmmakers, and writers “were instructed to cover the progress of land improvement projects and the
efficiency of land improvement and their role in fulfilling the Food
Programmeme of the U.S.S.R.
”[39] This cyclopean effort produced only modest results. Over time, the areas of
irrigated and drained land going out of cultivation came to be nearly equal to
those brought in. After the decision to divert water from north-flowing and
Siberian rivers was reversed and ongoing projects discontinued, the enormous
costs incurred on related research and development were to be written off.[40] In formal terms, all those costs contributed their share to Soviet GDP.
The directive system that finally took shape in the 1930s through 1950s was
effective as long as it was backed by all-pervasive fear and threat of tough
repression that ran deep through society as a whole. After 1953, when the fear
of repression gripping society started to fade, the efficacy of socialist
management techniques took a dip. Workplace discipline fell as a result.
Speaking at meeting of the Central Committee
’s ruling Presidium on August 24, 1956, Khrushchev remarked curtly: “Stealing all coming their way.”[41]
Overwhelming alcohol abuse, which led to stagnation in the early 1960s and
ultimately to a decline in the average life expectancy for men, combined the
worst drinking traditions in town and country. In the course of two decades,
alcohol consumption per capita rose 2.2-fold, the number of offences under the
effect of alcohol, by a factor of 5.7, and the number of confirmed alcoholics,
7-fold.[42] Almost 90% of instances of absenteeism were related to hard
drinking.[43] In 1986, four million people in the U.S.S.R. were officially
registered as alcoholics. Almost nine million more people received medical
treatment for alcohol abuse every year.[44]
Adherence to plan became slack. Whenever an industry or enterprise failed to
meet its planned targets, the bar was taken down a few pegs. If general fear of
the regime, the core that holds an economic system intact, is removed, the
system begins to sputter.
Gradually, beginning in the late 1950s and early 1960s, the economic system was
transformed into what V. Naishul called
“alignment economics.”[45] This author has a different name for it, “hierarchic bargaining economics.”[46] Production benchmarks and resource allocation were no longer set by
directives going from the top all the way down, but rather through hierarchic
alignment. Resources and possible sanctions against subordinates were the chips
in the superior authority
’s hands, and ranged against them was the subordinates’ knowledge about the real production problems and their ability to deal with
snags.
Declassified documents from the 1930s proved that at that time, too, the system
was not entirely
“doas-I-tell-you,” and had elements of bargaining between hierarchic levels.[47] It was not a
matter of differences in quality, but of gradual evolution to a point where the
capacity of overlying government levels to impose their will on those under
them was trimmed down. A greater role the underlying management echelons
wheedled out through hierarchic bargaining did nothing to improve performance
of the socialist system, or resolve problems stemming from the absence of
free-market instruments.
Attempts to improve the efficiency of the Soviet economy by tinkering with
management approaches led to nothing. The plan ceased to be the bible. Labour
influx thinned out, and labour shortages could not be offset by stepping up
investment.[48] S. Fisher and W. Easterly nailed down the failure of the
existing system to compensate for labour shortages by throwing in more money as
the chief reason for the collapse of the Soviet economy.[49] Those were real
problems, stretched out over decades. Extrapolating a similar trend helps
predict a slowdown of economic growth, even torpor, but not an immediate
meltdown.
***
Economic growth rates decelerated by about a percentage point a year over a
decade.[50] But that did not hold threat over the existing economic and
political groundwork. Estimates made within the framework of research conducted
in the U.S.S.R. into long-term forecasting of the Soviet Union
’s economic growth suggested that those trends were to hold into the future. It
was taking a risk to show forecasts of slowing growth rates in the final
version of the document prepared for the eyes of the country
’s top leaders. The community of economic professionals saw the picture in
exactly these colours. A majority of Western researchers who studied the Soviet
economy put it in approximately the same perspective. If those trends were any
guide, there were between 20 and 30 years before economic growth in the
U.S.S.R. would grind to a halt.
D. Sutter, a Financial Times correspondent who gave a synopsis of the views of
informed Western observers watching developments in the Soviet Union, wrote in
1982: The Soviet Union claims to have created a new man, and I think,
regrettably, that it is right in its claim: (
…) he combines animal awe of the authorities and deep-seated fear.[51]
Meanwhile, the effectiveness of communist ideology had been eroded. The country’s leaders embraced habitual ideological clichés and watchwords as an inherited ritual they were bound to go through. Society
either ignored them, or played them up in kitchen jokes.
The policy of culling intellectuals from the ranks of communist leaders, pushed
for decades, crystallized in a gerontocratic Political Bureau (Politburo)
overhanging the party
’s Central Committee, too old to make sensible decision. It does not require a
party leader to be a highbrow to be pulled along by inertia and play by the old
rules.
In his own summary of CIA reports on the situation in the Soviet Economy,
Senator W. Proxmire said in 1982: There are three key points in these reports:
first, Soviet economic growth is slowing down, and yet, the economy will
continue to grow in the near term; second, economic results have been
unsatisfactory, and the economy
’s efficiency is low, but this does not mean that the Soviet economy has ceased
to be viable or dynamic; and third, even though a gap exists between Soviet
economic performance and plans, collapse of the Soviet economy is not even a
remote possibility.[52]
In the 1960s and 1970s, though, relations between the U.S.S.R. and the rest of
the world underwent a radical change (overlooked by a majority of observers).
TO BE A PART OF THE WORLD ECONOMY
At the time, the Soviet Union’s economy, while remaining formally closed, was deeply integrated into the
international trade system and exposed to seesawing world markets (see: Table
2). This fact is generally noted by grain and oil market researchers only. A
majority of analysts studying the socialist system thought it stood on a
rock-firm foundation.[53]
Table 2
Trade between the U.S.S.R. and OECD Countries, 1950-1989
Trade between the U.S.S.R. and OECD Countries, 1950-1989
Note: Roubles were converted to dollars at the official exchange rate of the
U.S.S.R. State Bank, and the GDP deflator (IMF GFS 2005) was used to arrive at
2000 prices. Source: Statistical yearbooks Foreign Trade of the U.S.S.R. for
different years, Statistics, Moscow.
Papers discussing risk factors capable of wrecking the stability of the existing
Soviet regime did come out, but they had a limited effect.[54] It took a great
effort of imagination to suggest that the Soviet Union, its ruling communist
party, and the Soviet economic system would in no more than six years be out.
***
The surprisingly fast collapse of a political and economic structure that
existed for many decades raises brows and casts a shadow on the reputation of
experts in Soviet economics and politics. Critics blame the U.S. Central
Intelligence Agency for its failure to see the looming crisis and downfall of
the U.S.S.R., and rate it as the Agency
’s greatest embarrassment. Many Sovietologists responded in self-defence – we erred because we could not predict an economic crisis in the U.S.S.R. The
idea of subjective underpinnings of the collapse and explanations for it to be
found in errors made by the Soviet leadership after 1985 gained significant
currency among this group of experts.[55]
This view is close to the hearts of people who see an international conspiracy
behind the Soviet Union
’s crash. It is best propounded in Russia by writers who believe in a worldwide
scheme against Russia. If you accept their standpoint, you will have no trouble
explaining the turn events in this country took at the watershed between the
1980s and 1990s. Particularly, if you share the Russians
’ longstanding traditions to offload the blame for their own failures on
foreigners.
Decades back, the philosopher I.A. Ilyin wrote, as a warning, that our people
have
“ancient religious foes who have lost their peace of mind because the Russian
people persist in their
‘schism’ or ‘heresy,’ rather than accept ‘truth’ and ‘humility,’ and do not succumb to absorption by the Church. Since, however, you cannot
mount crusades against them or burn them at the stake, it only remains to throw
them into a destructive turmoil, degradation, and distress, which will become
for them either a
‘cleansing purgatory’ or an ‘iron broom’ sweeping the Orthodoxy to the garbage dump of history.” He also wrote that Russia’s enemies of another stripe “will not cool off until they have overwhelmed the Russian people by
imperceptible infiltration of their soul, and will to implant in them
godlessness in the guise of
‘tolerance,’ and, in the garb of ‘republic,’ subservience to backdoor machinations, and national defacement masquerading as ‘federation.’ Those are backstage ill-wishers plying their trade on the quiet.”[56]
Another fashionable occupation in Moscow is gossiping about the CIA’s demoniacal powers, a fad that stands in contrast to the feeling running high
in Washington that the CIA bungled clumsily its job of following developments
in the U.S.S.R., and in Russia, too, at the turn of the 1990s.
Another explanation for the underlying causes of the breakdown of the Soviet
economy relates it to the arms race that was whipped up with the installation
of the Reagan administration, and to the growing financial burden the U.S.S.R.
had to bear, and overreached itself, to keep pace with the extravagant U.S.
military expenditure.[57] To see whether this explanation for the Soviet Union
’s break-up is right or wrong, it is appropriate to look into defence budget
decision-making and the scale of defence procurements in the U.S.S.R. in the
late 1970s and early 1980s.
THE U.S.S.R. GIRDED ITSELF FOR AN OFFENSIVE WAR?
Along with assistance to foreign socialist countries,[58] defence spending was a
key priority for the Soviet leadership. The size of defence spending in the
U.S.S.R., or its share of GDP was unknown even to the country
’s top political and military brass. We find clear evidence of confusion in the
contradictory figures provided by Mikhail Gorbachev, the last President of the
U.S.S.R., and V. Lobov, chief of the General Staff of the U.S.S.R.[59] Trying
to give an accurate estimate of either is a self-defeating task. Defence
spending was shown in many different budget lines, which do not tally on
balance. Neither is there a plausible consensus on how closely military
hardware prices matched economic facts. What is obvious beyond a doubt is that
the share of defence spending in GDP was high by any international standards. A
country with an economy only a quarter as large as that of the U.S. managed to
maintain a military parity with the U.S. and its allies and find resources to
keep 40 army divisions on its border with China must have been a heavy spender,
common sense suggests. Defence spending was a drag on the civilian sector of
the country
’s economy. By 1980, inputs in the economy had been yielding low returns, even
without the defence burden.
Arguments that the Soviet Union started boosting its defence spending after it
was forced to scramble for leadership in an accelerating arms race with the
U.S. in the early 1980s hold little water. Characteristically, inertia was the
hallmark of the Soviet military-industrial complex. Arms production was
adjusted to keep existing capacities busy, rather than to meet the armed forces
’ demand. Where a technological possibility to manufacture an advanced weapon or
system presented itself, a pretext was always found to update existing
inventories. When Gorbachev
’s aide Shakhnazarov asked the country’s chief of the General Staff. Akhromeyev, “Why produce so many weapons?”, the General Staff chief’s reply was: “We have built first-class arms plants, not a bit worse than the Americans have,
at a price of enormous sacrifices. Do you want them to stop making weapons and
switch to pots and pans? No, it
’s a utopia.”[60]
The history of Soviet tank making is a good illustration of how decisions were
made on how many tanks the U.S.S.R. needed.
In the 1970s, the U.S.S.R. turned out 20 times as many tanks as the U.S. did.
When, in the wake of the Arab-Israeli war, Israel found it needed huge
quantities of modern tanks to replace its aged armour, tank production in the
U.S. rose, in a matter of a few years, to about a quarter of tank production
figures in the
U.S.S.R. At the time, the Soviet army had over 60,000 tanks in service, many
times more than the U.S. and its allies had between them.
SEEING IT FROM A STRATEGIC VIEWPOINT …
It you care to take a strategic view of things happening in defence in the 1970s
through the early 1980s, you would certainly arrive at the only natural
conclusion, as also could Western experts watching the speed at which the
Soviet Union was building up its armoured forces, that the U.S.S.R. was bracing
for an aggressive push across Western Europe to the Bay of Biscay. Things were
different in reality, though. As we know now from declassified information, the
chief argument in support of continuing tank production on a scale
unprecedented in peacetime was the belief in the top echelons of power here
that the U.S. had a greater potential to step up production of armour in
wartime. Soviet General Staff analysts prevailed on their superiors that the
Soviet army
’s losses in armour could be very high in the early months of war. Their
suggestion was having as many tanks as possible in peacetime.[61] No one
listened to arguments that the U.S. and its allies could not rush production of
these combat vehicles in a setting that had changed in the decades after the
war. Rather than military considerations, the factor figuring high in debates
over the issue in the U.S.S.R. was that the tank plants were there already,
with jobs giving a livelihood to thousands of families, a strong enough reason
to keep them in production.
Deployment of Soviet SS-20 medium-range missiles followed a similar scenario. A
good missile was designed, and technologies were put in place to produce it in
quantities. The Soviet leadership resolved to deploy a new nuclear-capable
system. No consideration was given to the possibility of its new missiles
provoking NATO into deploying its own medium-range missiles in Western Europe
and exposing the U.S.S.R. to greater risks of shorter approach time of its
potential adversary
’s missiles. Second thoughts came a while after piles of money had been blown on
missile deployment.
In the early 1980s, the U.S. Congress set up a commission to verify CIA
assessments of the Soviet military effort. After a review of Soviet arms
production figures, the commission found no sensible explanation, in terms of
military or political logic, for the quantities produced other than the
suggestion that the U.S.S.R. was preparing to launch an offensive war.[62]
According to available documents, no one in the Soviet leadership at the time
was dashing to do a lifeand-death battle on world imperialism. Large quantities
of arms were churned out and delivered to the army and navy for the trivial
reason that the existing plants were expected to operate at capacity. In the
early 1980s, the Soviet military-industrial complex was unable to draw on extra
resources allocated to arms production, because it was operating almost beyond
capacity. It was a heavy, if normal, burden on the Soviet economy.
The weight of defence spending explains many hardships and privations the Soviet
Union went through in the decades from the 1960s to the early 1980s, but it had
no part in the economic disaster that hit it in 1985 to 1991.
***
The experience gained in the 20th century, after Marx and Engels discoursed on
the laws of history, is enough to argue that life follows less rigid laws than
it appeared to the founders of Marxism. The choice of strategy for decades
ahead depends on factors impossible to predict. And individuals play a greater
role in history than the two thinkers believed.
The Soviet leadership’s decisions had a no minor part in channelling the crisis in the country’s economic and political system in the direction it took in the late 1980s and
early 1990s. Much, but far from all, depended on the will of the country
’s leaders. It would not be a futile exercise to turn this around – they didn’t decide all, but had a final word on much. A close scrutiny of the situation in
which the Soviet Union found itself in the mid-1980s leads us to the conclusion
that the leaders
’ desire to carry on the policies they inherited from the preceding decade
(briefly, cementing the existing economic and political systems without
attempting to change anything), against the background of realities of the late
1980s, sealed the regime
’s fate.
ECONOMICS OF SHORTAGES
It has long been a proven truth that socialism is an economy of shortages.[63] It is a waste of time trying to explain how it worked to people without
first-hand experience. Facts such as how useful it was to be closer to the top
of the socialist hierarchy of access to anything in short supply, how good it
was for your family to have an acquaintance as a salesclerk, or best a section
manager, at a food store, or any store, or how normal people travelled once a
month 200 miles or more from their small provincial towns to the nearest big
cities blessed with more plentiful supplies, to wait hours in a line snaking
around the store, and grab as much as was legally allowed, are not for anyone
spared living in a socialist society, and buying as much as they feel they need
now, to grasp.
All sociological studies, that is, those that were permitted, rang the alarm
bell about growing shortages in the consumer market since the late 1960s.
Proliferation of the usual shortages of the late 1970s and early 1980s into a
food crisis, and the authorities
’ default on their commitment to deliver enough supplies under their rational
distribution programme-me was the basic economic explanation for the loss of
consumer confidence in the regime and its collapse at the turn of the 1990s.
Supplying enough foodstuffs to large cities was the main economic and political
challenge facing the tsarist government during the First World War. It did not
rise to the challenge, and fell in the turmoil of the 1917 revolution. Food
supplies were a pivotal issue during the civil war of 1918-1921. By
requisitioning foodstuff from farmers and shedding rivers of blood along the
way, the Bolsheviks demonstrated to society their own way of mustering food
resources.
Midway between 1928 and 1929, the crisis in food deliveries to cities was back
in the focus of an acrimonious economic and political debate. Stalin
’s choice of response – ruining wealthy farmers, corralling the rural population into collective farms,
and resurrecting food requisitioning raids
– laid the course for the country’s development in decades ahead.
Contrary to the famous Marxian dictum that history repeats itself, first as a
tragedy and then as a farce,[64] events in the U.S.S.R. were a demonstration
that history may repeat itself more than once and be anything but farce every
next time. Food deliveries to large cities came again to the top of economic
policies in the second half of the 1980s. This time, however, the country
’s future hung on the kind of solution to be found. Before we retrace the history
of the new crisis, we will look into its root causes.
A process preceding accelerated industrial growth in countries that launched
their industrialization drive some time between the late 18th and early 19th
centuries has since been known as the
“agrarian revolution.” Growth rates are lower in agriculture than they are in manufacturing, but,
projected on the time scale, they are high and stable. They had never stayed
like that so long in any other previous period.
The state played only a limited role in funding industrialization in countries
that propelled themselves into modern growth economies. Governments in those
countries never went to overtaxing farmers to raise funds they could invest
into state-owned industries.
A farmer’s eldest son kept the farm and went on farming, and his junior brothers set out
to look for a job in town. Massive emigration from Europe across the ocean,
instigated by the growing population and, in a large measure, desire to support
the farming class and farmers, reluctant to switch from farm to factory shop
floor, is a striking illustration of the appreciation farm labour gained during
the early years of industrialization.
Things were different in countries pursuing “catchup” industrialization. Their governments have a greater part in boosting industrial
development. Funds are needed to feed government investment. Where the bulk of
economic activities is centred on the countryside, farmers offer an ideal
target to collect taxes from in order to carry through government investment
projects.
THE FARMING CLASS: THE STATE’S MILCH COW
History writers have argued for years attempting to find out how much excessive
taxes on farmers slowed down Russia
’s agricultural growth in the period between 1870 and 1913. There is, however, an
obvious connection between the survival of the peasant commune for decades
after the abolition of serfdom and fiscal considerations, in particular joint
and several liability as a tool to keep funds flowing into government coffers
to finance construction of railroads.
The “catch-up” industrialization model spawned political risks, which were much in evidence in
Russia in the early 20th century. The tsarist government
’s policy did not, at that time either, trigger a deep agrarian crisis, with
industrial output growing at the expense of contracting farming output. Average
decade-to-decade grain harvests were growing, allowing Russia to remain the
world
’s largest grain exporter (see: Tables 3 and 4).
Table 3
Average Annual Grain Harvests in Russia
Average Annual Grain Harvests in Russia
Source: Liashchenko, P.I. A History of the Russian Economy. State Publishers,
Moscow-Leningrad, 1930.
Table 4
Average Annual Grain Exports by Period, 1896-1913, m. of tonnes
Average Annual Grain Exports by Period, 1896-1913, m. of tonnes
Source: Russia: Liashchenko, P.I. A History of the Russian Economy. State
Publishers, Moscow-Leningrad, 1930. Other countries: Mitchell B.R.
International Historical Statistics. L.: Macmillan Reference LTD, 1998.
The socialist industrialization model that took shape in the U.S.S.R. between
the late 1920s and the early 1930s was, at first sight, a sequel to the Russian
tradition of the late 19th and early 20th centuries, with the state initiating
a
“catch-up” industrialization from funds raised in the countryside. With a difference,
though, as expropriation of resources from farmers was immeasurably more
thorough and more sweeping. In fact, it was a different kind of development.
Farmers dragooned into collective farms and deprived of the freedom of movement
or choice of job, or place of residence, and forced to drudge for free, carving
out time to toil on their small backyard plots to earn a living for their
families, and, finally, beginning in the late 1940s, having to pay heavy taxes
on their plots in kind and in cash, was the nearest thing to serfdom born
again. The only difference between old and new serfdoms was that this time the
government was the sole landowner, rather than one of many. Given modern tools
of control and compulsion, absence of moral constraints, and the authorities
’ conviction that whatever outrages were committed in the countryside was of
little importance next to the growth of investment in manufacturing, and
without the restraints typical of agrarian societies, that would draw a line
under expropriations from farmers, the size of resources siphoned off from
country to town was unprecedented in world history.
Forced labour on a collective farm as a variety of serfdom, the way farming was
organized and run, too familiar to generations of Russian farmers, was an
unavoidable throwback to the standards of work ethic in Russia before the 1861
reform that abolished serfdom, descriptions of which we find in Russian
literature.
The early 1930s set the stage for an erosion of the work ethic foundations laid
in Russia between the early 1860s and the late 1920s. It was embraced by stout
farmers who realized that they were working for their own and their families
’ benefit, who saw the difference between working for themselves and sweating for
the landowner, who learned to be rich in the commune, too, and who understood
that they had to work hard, to give their children an education, and adopt new
farming practices. Destruction of that farming middle class was a blow to farm
work ethic unknown in history.
The farmers’ social standing was poignantly downgraded and humiliating, far beyond
comparison with that of industrial workers. Collective farmers who were the
biggest segment of the population in the country in the 1930s and 1940s were a
class openly discriminated against.
Beginning in the late 1940s, heavy taxes in cash and in kind were imposed on
backyard farms to force their owners to work on collective farms. Farmers
responded by slaughtering their cows and axing their fruit trees. In 1950, 40%
of farm families kept neither milk cows nor goats.[65]
While the positions of farmers and industrial workers in countries at the
leading edge of economic advance differed in lifestyles and nature of work, but
not in average incomes, the gap between them was enormous in the U.S.S.R. This
laid a special imprint on migration to towns and differences between migrants
in the U.S.S.R. and leading countries.
The choice of farming as a way of life was not related to inaptitude, lack of
diligence or adaptability in countries setting the pace for modern economic
advance. As a rule, elder sons, who stayed behind and took over the running of
their fathers
’ farms, were raised in the same family. The choice of job was dictated by the
circumstances of birth. Traditional work ethic was not offended in the
countryside. Farming continued unbroken. Many cutting-edge countries are among
the biggest net exporters of foodstuffs today, just as they were decades back.
With all escape routes blocked or restricted, migration from country to town
always continued in the U.S.S.R. The stayers and leavers were different types
in the U.S.S.R. than those in countries that never experienced socialist
industrialization. The socialist development model encouraged the more educated
and vigorous children of farmers to look for ways to migrate to towns.
Beginning in the late 1940s, the exodus of farmers from their villages
intensified. The law passed in 1932 to forbid farmers to leave their villages
without proper authorization was still in force, but there were many ways to
evade bans. Industrial and construction projects were short of labour, and they
could only draw on it in the countryside.
***
In 1953, when Stalin died, Soviet agriculture was the weakest spot of the Soviet
economy. This truth was clear to all the top party leaders. They were at one in
the view that more funds were needed to promote agriculture. What differences
they had centred on spending priorities. They faced two options
– pouring funds into traditional agricultural areas or launching a large-scale
programme to develop virgin and fallow lands. They gave the nod to the second
option.
A NEW COVENANT BETWEEN GOVERNMENT AND SOCIETY
The previous forms of regime legitimization were replaced with a new covenant
the rulers made with the ruled. Nobody saw or signed it on paper, of course.
But its message was clear: You, the government, promise us, the people, to make
life liveable, and keep in place the social programmemes you passed and retail
prices for consumer essentials stable. In return, society will tolerate you
(the government) and will take you as an inevitable evil.
What a breach of covenant could bring about was demonstrated by riots in
Novocherkassk in 1962, in the wake of a moderate hike, barely enough to correct
accumulating imbalances, of retail prices for basic consumer essentials.
“Prices of meat and meat products were raised, as of June 1, 1962, by an average
30%. Between May and June 1962 consumption of meat and meat products fell by
15% in worker families earning up to 35 roubles a month per family member, and
by 8% in families making between 50 and 75 roubles a month per family member.
”[66]
Mass rioting that followed in the wake of price increases in Poland in 1970,
1976, and 1980 confirmed the Soviet leaders in their belief that prices were
off limits under any circumstances.[67] Prime Minister Andrei Kosygin, the most
competent of the Soviet leaders in the 1960s and 1970s, retorted to a
suggestion for retail prices to be raised.
“Don’t ever tell me that. You can do it only once in a lifetime.” He was referring to the price increases in the summer of 1962.
Against this background, the monetary system was beleaguered by multiplying
problems.[68]
The Soviet Union’s political leaders were caught in a trap so firmly shut that they had
difficulty getting out. They knew they could not step up agricultural
production at a rate needed to meet rising demand. Nor could they bring demand
for farm products in balance with supply without having to raise prices.
Raising prices would be a breach of the implied covenant with the people. The
rift between rising procurement prices of farm produce and retail prices was
widening, and the budget was under pressure as a result. The unintended growth
in the share of agriculture in total investment cut into funds devoted to
encouraging the growth of high technologies.
By tradition, the Soviet authorities responded to unrest in their East European
vassals by using armed force, followed up by more economic aid.[69] In the
1950s and early 1960s, they assisted East European socialist countries and
propped up their communist regimes by grain deliveries. Grain shipments were
pared down in the shadow of the looming crisis in Soviet agriculture, but still
continued in reduced quantities until the early 1960s.
THE OIL OF WEST SIBERIA: AN ILLUSION OF SALVATION
Hope for a solution of these problems came with the discovery of oil fields in
West Siberia, from which, once they were developed, oil could be pumped to
industrial capitalist countries and export receipts used to pay for huge
imports.
The Soviet Union started exporting oil in significant quantities in the 1950s.
Oil production, in the first place, in the middle Volga area, rose rapidly in
the decade between 1950 and 1960. Oil was largely shipped to socialist
countries in Europe, and was exported for hard currency in token quantities
only.
The first gusher was struck in West Siberia in 1953. Large geological
discoveries came later, between 1961 and 1965, beginning with Megion and
Ust-Balyk in 1961, Fedorovskoye in 1963, and Mamontovskoye and Samotlor in
1965. The new oil fields had high well outputs, typically over 100 tonnes of
oil per well a day, and reasonable depths of 1.8 to 2.5 kilometers.[70] Within
a decade, 1972 to 1981, oil production in the West Siberian oil and gas
province rose 5.3-fold to 334.3 million tonnes, from 62.7 million tonnes.
Oil production in the U.S.S.R. in those years was rising at the fastest pace in
the industry
’s history. Many of the new oil fields merited unique ratings by international
standards because of the very large outputs of their wells.
Table 11
Oil production in the U.S.S.R., 1960–-1985, m. of tonnes
Oil production in the U.S.S.R., 1960–-1985, m. of tonnes
Source: Statistical yearbooks The National Economy of the U.S.S.R. for different
years.
The Soviet Union was rapidly building up its oil exports to developed capitalist
countries. Its hunger for hard currency pushed it into using oil production
techniques that yielded desired results fast, but carried risks of production
rates falling within years. Over the years spanning the late 1970s and early
1980s, inconclusive skirmishing continued between bureaucrats responsible for
the overall performance of the Soviet economy and technocrats developing the
West Siberian oil and gas province over how far oil production rates could be
raised without damaging long-term oil field development prospects. At times,
light skirmishing developed into tough confrontation. V. Shashin, then oil
minister, badgered Gosplan bureaucrats and party functionaries about their
overestimates of oil fields having a capacity to increase output indefinitely
without giving a thought to the side effects of their delusions.[71]
Gathering food problems were pushing the Soviet leaders to opt for rapid
development of the oil fields. Prime Minister Andrei Kosygin pestered V.I.
Muravlenko, chief of the Tyumen oil and gas authority, for more oil, above plan
in dispatches approximately like this:
“Grain a headache again. Please pump 3 million tonnes more.”[72]
Between 1974 and 1984, the costs of recovering an extra ton of oil rose by 70%.
Overall, oil pumping costs doubled between the early 1970s and the early
1980s.[73]
Hurried oil production growth required efforts to be focused on major projects.
Well operation techniques used to rapidly increase oil output created
unpredictable risks and made continuation of current oil output dependent on
the development of a few more unique oil fields.[74]
The foreign trade balance, the balance of payments, food supplies, and
continuing political stability were increasingly becoming captive to the
weather on the virgin lands and on oil output. Not much for a world superpower
to claim as a basis for its economic and political stability.
Apart from the discovery of giant oil and gas fields, stability of the Soviet
economy in the 1970s benefited enormously from an unprecedented increase in oil
prices in 1973 and 1974, and another price leap in 1979 through 1981. As more
oil was exported for hard currency, hard currency receipts were, beginning in
1973, to grow at increasingly faster rates never recorded before.
The influx of petro-money helped to halt the threatening food crisis in cities
and to step up imports of industrial equipment and consumer goods. It also
provided the funds to whip up the arms race and achieve nuclear parity with the
U.S. The money glut lured the country
’s leaders into a series of political adventures abroad, including the Afghan
war.[75]
OBSESSION
Even though oil production was rising fast, and more oil was exported to take
advantage of high oil prices in the mid-1970s and early 1980s, the Soviet
leadership could not, as it had not before, make up its mind to start building
up hard currency reserves or invest its export receipts in liquid financial
instruments to be used in emergencies such as oil market downturn. It did
neither of these two things, although it knew that the country
’s economy and socio-political stability hinged on its record-high imports of
grain. The Soviet Union
’s hard currency reserves were, as previously, no larger than was needed to back
up the country
’s current foreign trade.
The only plausible explanation for this policy was the Soviet leaders’ conviction that oil prices, which reached historical highs in the late 1970s,
would hold in the future, and avoided thinking about the moves they were to
take if prices started sliding back.[76]
Although oil prices remained high in 1979 to 1981, the U.S.S.R. had difficulty
closing the deficit of its current balance of payments. As many times before,
agriculture was to blame
– three bad back-to-back harvests that led to larger grain imports.
Oil and gas contributed 67% to the Soviet Union’s exports to OECD countries in 1980. Still high, oil prices stopped climbing. In
the early 1980s, shortages of consumer goods grew worse, more banknotes were
printed, and farm market prices rose. Budget spending came increasingly to
depend on personal bank deposits. The economy tipping into a greater imbalance,
finances alarmingly messed up, and shortages in the consumer market encouraged
attempts to make up for short supply of foodstuffs by lowering their quality,
such as raising the content of water and starch in sausages. Beginning in the
mid-1970s, about half of growth in sales in food retailing was achieved by
quality adulteration and price increases. Gosplan, the country
’s top planning agency, prepared a report on the situation in food production and
distribution and circulated it to the vice premiers. The following day, the
circulated report copies were collected and destroyed.[77] All those things
were happening against the worsening background of economic crime and
corruption.[78]
The Soviet leadership always, from generation to generation, regarded foreign
trade and allocation of hard currency as its political tool. The Soviet Union
’s foreign trade closely combined economic and political objectives focused on
supporting its sympathizers and admirers in other countries and stabilizing its
vassals in Eastern Europe. The U.S.S.R. used its political leverage frequently,
and with some success, to pull strings on key political decision-making in
developed democratic countries.
A Polish party and government delegation arrived in Moscow for talks with their
Soviet counterparts on March 1 and 2, 1982. The delegation head, prime minister
Wojciech Jaruzelski, spoke about the difficulties facing the Polish economy,
industrial plants operating at 60% capacity, the threat of unemployment for
400,000 industrial workers and 200,000 construction workers. The Poles thanked
the Soviet Union for nearly 4 billion COMECON roubles, including about $3
billion, in emergency economic aid to their country in 1980 and 1981. The
negotiators reached an agreement on a loan of 2.7 billion roubles to be made to
Poland in 1982 and 1983. Besides this, the Polish delegation requested more
extensive economic aid. The costs of engaging in politics abroad and preserving
the empire were growing as time went by.
OIL AND POLITICS
***
Between 1981 and 1984, the Soviet government had no other tool than expanding
oil shipments to deal with growing foreign trade difficulties. Oil exports,
which stood at 93.1 million tonnes in 1975, rose to 119 million tonnes in 1980,
and on to 130 million tonnes in 1983.[79] Oil production growth rates, mean
while, slumped toward the late 1970s, however, and continued on at a snail
’s pace beginning in 1980.
The Soviet leaders must have been aware that the situation in the oil market was
exposed to economic and political influences, because they had dabbled in
pulling some sensitive strings.
Chief of the State Security Committee (KGB) Yuri Andropov wrote, in part, in his
letter of April 23, 1974, to Leonid Brezhnev, General Secretary of the Soviet
Communist Party
’s Central Committee: “Beginning in 1960, the State Security Committee has maintained secret business
contacts with Wadia Haddad, member of the Executive Committee of the Palestine
Liberation Organization (PLO) and PLO foreign operations chief. Meeting a KGB
station chief in Lebanon last April, Wadia Haddad told the station chief, in
confidence, about the PLO
’s long-term programmeme of subversive and terrorist operations, which briefly is
as follows. The chief purpose of the PLO
’s special operations is enhancing the efficiency of the Palestine resistance
movement in its fight against Israel, Zionism, and U.S. imperialism.
Accordingly, the main objectives of the organization
’s subversive and terrorist operations are: continuing special ‘oil war’ actions by Arab countries against imperialist forces supporting Israel;
launching actions against American and Israeli nationals in third countries
with the aim of obtaining authentic information about U.S. and Israeli plans
and intentions; conducting subversive and terrorist operations in Israeli
territory; and pursuing subversive actions against the diamond concern, in
which Israeli, British, Belgian, and West German companies hold major stakes.
In line with these objectives, the PLO is planning a series of special
operations, including strikes against major oil fields in various regions of
the world (Saudi Arabia, the Persian Gulf, Hong Kong, and so on), destruction
of oil tankers and supertankers, action against American and Israeli
representatives in Iran, Greece, Ethiopia, and Kenya, attacks on the Diamond
Centre building in Tel-Aviv, and so on. W. Haddad asked us to help his
organization obtain certain types of specialized equipment they need to carry
out certain subversive operations. [
…] In view of the above, it would be reasonable to give a positive response to
Wadia Haddad
’s request at the next meeting for assistance to the Palestine Liberation
Organization with specialized equipment.
”[80]
The invasion of Afghanistan, which Persian Gulf countries saw as a potential
threat to Saudi Arabia, in the first place, was a factor that swayed their
attitudes toward the U.S. They needed that superpower
’s potential military support. America wanted lower oil prices. The possibility
of tying up these two objectives was first discussed at a high level in April
1981 when CIA Director William Casey paid a visit to Saudi Arabia.
In autumn 1981, the Soviet Union, confronted with serious balance of payments
problems, had no choice but to inform East European socialist countries of a
10% cutback in annual oil shipments to them and to use the tonnages released to
increase exports to OECD countries. At that time, too, it could not ignore
political considerations either. When, in 1985, oil production started falling
off for the first time in Soviet economic history, shipments to developed
capitalist countries took a deep plunge. The Soviet leadership had
apprehensions about reducing oil exports to COMECON countries any further.[81]
Richard Pipes sent a memorandum to the American authorities in the early 1980s,
advising them to exploit the Soviet economy
’s dependence on oil market prices to destabilize the communist regime. William
Casey, who was appointed CIA director by President Reagan, had experience in
analyzing and deriving benefits from an adversary
’s weaknesses. He cut his teeth in this craft during the Second World War, when
he worked to maximize the economic damage the Allies could inflict on Nazi
Germany. Early into his presidency, on March 26, 1981, Ronald Reagan made an
entry in his personal diary on the briefing he had received on the situation in
the Soviet economy, its problems, and its dependence on Western loans. In
November 1982,
President Reagan signed a national security directive (NSDT-66) calling for
efforts to cause damage to the Soviet economy.[82] Its purpose was, of course,
to weaken the Soviet Union economically and politically. No one in the American
administration of the period indulged in dreams of imploding the U.S.S.R. by
exploiting its economic vulnerability.
If all this is true, it only, much as we regret it, speaks volumes about the
intellectual powers of the Soviet leadership of the early 1980s vintage. It
must have taken a long time to pack the country
’s ruling bodies with a bunch of least capable individuals only to expose the
world superpower
’s economy and politics to the fancies of a potential adversary (the U.S.) and a
main rival in the oil market (Saudi Arabia), and wait until they conspire
against it.
Elsewhere, the financial conditions in socialist countries kept deteriorating.
A circular of the U.S.S.R. State Bank’s Finance and Economics Department said, in part: “The socialist countries started borrowing extensively from Western banks in the
early 1970s, at the height of d
étente, when trade between East and West expanded significantly, the world
economy posted high growth rates, and prices for energy resources and raw
materials rose. In 1981, though, world economic growth faltered, and the
socialist countries
’ total outstanding debt reached $127 billion, a record for that time, and their
solvency hit near bottom.
”[83]
THE MELTDOWN
In 1985, rising costs of bringing new oil wells on stream and keeping existing
ones in profitable operation, combined with the shortage of funds, caused oil
production in the U.S.S.R. to fall by 12 million tonnes. To top it off, the
slow climb-down of real oil prices in 1981 through 1984 changed to a stampede
never seen before. In 1985 and 1986, the prices, on which the Soviet Union
’s budget was built, on which depended its foreign trade balance, the stability
of its consumer market, its ability to buy many million tons of grain a year,
service its foreign debt, and keep up its armed forces and the
military-industrial complex, tumbled by scores of percentage points.
But that was not the cause of the collapse of the socialist system.
The real cause lay elsewhere. It was in the institutions put in place at the end
of the 1920s and early 1930s, which were too rigid to allow the country to take
on the world development challenges of the late 20th century. The legacy of
socialist industrialization, the severe crisis of agriculture, and
uncompetitive manufacturing industries made the collapse of the U.S.S.R.
inevitable. In the 1970s and early 1980s, those problems could be managed by
capitalizing on very high oil prices. It was too shaky a foundation for the
world
’s last empire to survive.
***
By 1985, the groundwork had been laid for a sharp economic crisis in the
U.S.S.R., which could only be managed by tough, accurate, and responsible
decisions, a grasp on its origins, and a selection of steps that could, and had
to, be taken to minimize its damage, without accelerating the crash of the
economy. The Soviet bureaucrats responsible for foreign trade still firmly
believed in the stability of the Soviet Union
’s economic and financial position.[84]
A new political leader brought forth by a new generation of political elite came
to power. His election was a demonstration of the forced renunciation of the
power of the gerontocrats, who had ruled the country over the preceding
decades.[85] He had only a superficial knowledge of the real situation in the
country, and the scale of problems he was called on to unravel. He was unaware
of the real economic situation in the country and did not realize how critical
the situation was. We will never know whether or not the U.S.S.R. could be
salvaged by energetic and pointed moves without making a single mistake in that
situation. For the chances of success to be more than zero, there had to be a
clear realization of the scale and nature of the challenges facing the country.
The new crop of leaders took over three years to get a grip, if only a weak
one, on the ills of the Soviet economy. Much too long in a crisis that wouldn
’t wait.
REFERENCES AND NOTES
* This article is a journal version of chapters of a book due out later this
summer.
[1] It is more appropriate to call them empires consisting of a mother country
and overseas territories. The term has stuck, however. It will be used in this
sense further in the text.
[2] For more about the feeling of catastrophe brought on by the rapid and
unexpected disintegration of the empire, and the sense that the catastrophe
could be managed, see: Podvintsev B., Post-Imperial Adaptation of Conservative
Thinking: Favouring Factors. // Polius. Political Studies. 2001. No. 3 (62).
pp. 25-33.
[3] For more on the risk of radical nationalism bred by the post-imperial
syndrome, and the stability of democratic institutions, see: Gerschenkron A.
Bread and Democracy in Germany. Los Angeles: University of California Press,
1943. For more on the connection between pro-imperial policies and
authoritarian trends in modern-day Russia, see also: Overcoming the
Post-Imperial Syndrome. Shorthand records of the discussion held on April 21,
2005, within the framework of the After the Empire project of the Liberal
Mission Foundation. http://www.liberal.ru/sitan.asp?Num=549.
[4] In May 1926, President Paul von Hindenburg ordered German diplomatic
missions abroad to fly Republican and Imperial flags side by side.
[5] For more on the manipulation by Nazi propaganda of the demand for
compensation of savings lost during hyperinflation in 1923, see: Delmer S.
Weimar Germany: Democracy on Trial. N. Y.: Macdonald and Co., 1972. For more on
the effect German hyperinflation in 1922 and 1923 had on disorganization of the
middle class, see also: Weisbrod B. The Crisis of Bourgeois Society in Interwar
Germany // R Bessel. (ed.). Fascist Italy and Nazi Germany. Comparisons and
Contrasts. Cambridge: Cambridge University Press, 1972. P. 30.
[6] Brustein W. The Logic of Evil: the Social Origins of the Nazi Party,
1925-1933. New Haven: Yale University Press, 1996.
[7] Martin D. Aspilcueta, an economist associated with the University of
Salamanca, was, probably, the first scholar in Europe of the period to spot the
connection between rising prices and the influx of gold and silver from
America. See: Grice-Hutchinson M. The School of Salamanca. Readings in Spanish
Monetary Theory, 15441605. Oxford: Clarendon Press, 1952. pp. 91-96. A
classical study on the effect the influx of American gold had on Spain
’s economy was penned by E.J. Hamilton. Hamilton E.J. American Treasure and the
Price Revolution in Spain, 1501-1650. Cambridge: Harvard University Press,
1934. As is frequently the case with similar complex issues of economic
history, it suffered much criticism from his followers. See, for example: Nadal
J.O. La Revolucion de los Precios Espanoles en el Siglo XVI // Hispania. 1959.
Vol. XIX. pp. 503-529. Researchers in later periods demonstrated that the price
revolution in the 16th and early 17th centuries was caused by several other
factors in addition to the influx of gold and silver from America. Beginning at
about the 1460s or 1470s, Portugal started exporting much Sudanese gold to
Europe. The total exports between 1470 and 1500 ran up to 17 tons. See: Wilks
I. Wangara, Akan, and the Portuguese in the Fifteenth and Sixteenth Centuries /
I. Wilks (ed.). Forests of Gold: Essays on the Akan and the Kingdom of Asante.
Athens: Ohio, 1993. pp. 1-39. A role of some significance was played by silver
mined in Southern German, starting with the late 15th century, which pushed up
the supply of silver in Europe. See: Munro J. The Monetary Origins of the
“Price Revolution”: South German Silver Mining, Merchant-Banking, and Venetian Commerce,
1470-1540. Department of Economics and University of Toronto. Working Paper No.
8. June, 1999; Outhwaite R.B. Inflation in Tudor and Early Stuart England.
Studies in Economic and Social History Series. London: Macmillan, 1969; Burke
P. (ed.). Economy and Society in Early Modern Europe: Essays from Annales. L.:
Routledge
& Kegan Paul, 1972. John Nef puts silver production in Southern Germany, Austria,
Bohemia, Slovakia, and Hungary in 1526 to 1535 at between 80 and 90 tons a
year. See: Nef J. Silver Production in Central Europe, 1450-1618 // Journal of
Political Economy. 1941. Vol. 49. Рp. 575-591. Still, all these facts, an
interesting subject for discussion of economic history, cannot obscure the main
point
– connection between price increases in Europe in the 16th and 17th centuries and
the growing supply of precious metals. See:Marjorie Grice-Hutchinson. The
School of Salamanca: Readings in Spanish Monetary Theory, 1544-1605. Oxford:
Clarendon Press, 1952. P. 95.
[9] Since the times of the Reconquista, the idea that crop farming was a lowly
pursuit, while nomadic sheep grazing did not damage the status of a nobleman,
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Spanish farming. See.: Davies R.T. The Golden Century of Spain, 1501-1621. L.:
Macmillan
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agriculture, see: Klein J. The Mesta: A Study of Spanish Economic History
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para la Historia Juridica del Cultivo de la Ganaderia en Espana. Madrid, 1918.
Development of agriculture in Castile, already inefficient by European
standards of the period, was held back by a strange set of contracts between
the Spanish crown and the sheep grazers
’ guild that paid considerable monies to the crown for the right of free movement
of its flocks. See: North D.C. Structure and Change in Economic History.
N.Y.-L.: W.W. Norton
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[10] Complaints against high prices for Spanish goods were very common in the
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banning Spanish exports, even to Spanish colonies in America were an issue from
time to time. The high prices of foodstuffs and textiles prompted measures to
restrain the growth of prices, while the opposite moves led to shortage. Hence,
liberalization of import of foodstuffs and textiles to Spain was inevitable.
[11] Gonzalez de Cellуrigo M. Memorial de la Politica Necesaria y util
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[12] Kennedy P. The Rise and Fall of the Great Powers. Economic Change and
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Karl T.L. The Paradox of Plenty: Oil Booms and Petro-States. Berkeley:
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coming from oil production and export. See: Kingdom of Saudi Arabia:
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Press, 1986. A key role in resource-rich countries
’ political and economic development is played by the extent to which their
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that herring shoals, Norway
’s resource in the Middle Ages, were difficult to place under government control.
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[18] North D.C. Institutions, Institutional Change and Economic Performance.
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provided funds for the country
’s armed forces through non-transparent transactions is a good illustration of
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’s Indonesia. Honolulu: University of Hawaii Press, 1981.
[19] For more on the impact of resource wealth on the quality of national
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[20] Saltykov-Shchedrin M.E. Collected Works in 10 volumes. Moscow: Pravda
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[21] Leamer E.E., Maul H., Rodriguez S., Schott P.K. Does Natural Resource
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[23] Krueger A. Foreign Trade Regimes and Economic Development: Liberalization
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[24] Collier P., Hoffler A. Greed and Grievance in African Civil Wars. L.:
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of oil in the North Sea. The growth of oil exports in relation to GDP was
offset by falling exports of other goods. Among the OECD member countries in
that period, a similar situation existed in only one other resource-rich
country, Iceland, in which fish earned half of its export revenues. See:
Gylfason T. Natural Resources; Education, and Economic Development // European
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[25] Ascher W. Why Governments Waste Natural Resources. Baltimore-London: The
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[26] Corden M., Neary J.P. Booming Sector and Dutch Disease Economics: A Survey
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[27] These problems are at their worst in Russia. Unlike the Arab states in the
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significance of problems related to the
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[28] Sachs J.D., Warner A.M. The Curse of Natural Resources // European Economic
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[29] T. Gylfason writes that high incomes derived from the resource sector
stimulate redistribution of labour resources that could otherwise be used in
innovation-driven industries. Gylfason T., Herbertsson T.T., Zoega G. A Mixed
Blessing: Natural Resources and Economic Growth // Macroeconomic Dynamics.
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–September. 2000.
[30] Gylfason T. Natural Resources and Economic Growth: A Nordic Perspective on
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[33] An excerpt from the speech by L.I. Brezhnev, General Secretary of the CPSU
Central Committee, at the CPSU Central Committee
’s plenary meeting on December 15, 1969: “The basic task of our economy’s long-term development is, therefore, to raise sharply, approximately 2- to
2.5-fold, the efficiency of labour and physical resources committed, and to
make new savings. There is no other option for us.
” See: RGANI, Folio 2, List 3, File 168, Section 11688, Page 42.
[34] Resolution of the CPSU Central Committee and the U.S.S.R. Council of
Ministers of October 4, 1965,
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[37] Gaidar Ye., Lacis О. Can We Afford to Pay? // Kommunist. 1988. No. 17. pp.
26-30. I quote from my own articles published in Kommunist journal as the
source. It was a reliable source, though, because all statistics published in
Kommunist were first checked, under a top party decision, by the country
’s Central Statistics Board (later renamed State Statistics Board, or Goskomstat,
for short). Kommunist of that period was just as reliable a source of
statistics provided by official statistical agencies for publication in it as
their own official publications.
[38] Shorthand record of the CPSU Central Committee’s Presidium meeting of December 23, 1963; Presidium of the CPSU Central
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Resolutions. Vol. 1, 2nd ed. / Chief Editor А.А. Fursenko. Moscow: ROSSPEN,
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[39] Resolution of the CPSU Central Committee and the U.S.S.R. Council of
Ministers of October 23, 1984,
“Long-Term Programme for Land Improvement, and Greater Efficiency of Improved
Lands Used to Steadily Build Up the Country
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Part II. P. 113.
[40] Write-offs Related to the Project Designs for Partially Diverting
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[41] RGANI, Folio 3, List 12, File 1005, pp21-23 ob. Quoted in: Presidium of the
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[43] Speech by L.I. Brezhnev, General Secretary of the CPSU Central Committee,
at the CPSU Central Committee
’s plenary meeting on December 15, 1969. RGANI, Folio 2, List 3, File 168,
Section 11688, Page 58.
[44] Levin B.М., Levin М.B. Alcohol Reform in the U.S.S.R.: Progress, Problems,
Difficulties / Effectiveness of the Alcohol Reform: Some Sociological Aspects.
(International Conference in Baku, November 1-3, 1988). Moscow: Sociology
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[45] Naushul V. Liberalism and Economic Reforms // World Economics and
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[46] Gaidar Ye. Т. Economic Reforms and Hierarchic Entities / Executive Editor
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[47] For more on trade relations in the Soviet economy in the 1930s, data on
which was obtained from declassified Soviet materials, see: Gregory P.R. (ed.).
Behind the Fa
çade of Stalin’s Command Economy. Stanford: Hoover Institution Press, 2001.
[48] For more on problems allowing employees to choose between various competing
enterprises offering benefits and preferences, see: Voronin L.A. (vice chair of
the U.S.S.R. State Planning Committee, or Gosplan, for short). Memorandum to
the U.S.S.R. Council of Ministers. Organization of Work to Improve Economy
Management. February 23, 1984. GARF. Folio 5446. List 144. File 3. Page 44.
[49] Easterly W., Fisher S. The Soviet Economic Decline // The World Bank
Economic Review. 1995. Vol. 9(3). pp. 341-372.
[50] Sovietologists held that the average annual GDP growth rates were falling,
since the early 1950s, by approximately one percentage point a year (from 6% in
the 1950s to 4% in the 1970s), and expected that trend to hold in the future.
See: Whitehouse F.G., Kazmer D.R. Output Trends: Prospects and Problem / H.
Hunter (ed.). The Future of the Soviet Economy: 1978-1985. Boulder: Westview
Press, 1978. p. 9.
[51] Pryce-Jones D. The War that Never Was: The Fall of the Soviet Empire
1985-1991. L.: Weidenfeld
& Nicolson, 1995. p. 25.
[52] Rowen H. Central Intelligence Briefing on the Soviet Economy / Hoffmann E.,
Laird R. The Soviet Polity in the Modern Era. N.Y.: Aldine Publishing, 1984. p.
417.
[53] For more on the view predominant in Soviet studies that the Soviet economy
was stable, see: Buck T., Cole J. Modern Soviet Economic Performance. Oxford:
Basil Blackwell, 1987; Millar J.R. An Economic Overview / J. Cracraft (ed.).
The Soviet Union Today: An Interpretive Guide. Chicago: University Chicago
Press, 1983. pp. 173-186. Also about the political stability of the Soviet
Union in the early 1980s, see: Boffa J. A History of the Soviet Union. Vol. 2.
From the Patriotic War to the Position of the Second World Power. Stalin and
Khrushchev. 19411964. Moscow: International Relations Publishers. 1994. pp.
538-542.
[54] Shtromas A., Kaplan M.A. (eds.). The Soviet Union and the Challenge of the
Future. Vol. 1. Stasis and Change. N.Y.: Paragon House Publishers, 1988.
[55] For more on the views of Sovietologists who attributed the Soviet Union’s collapse to the Soviet leadership’s subjective decisions after 1980, see: Harrison M. Coercion, Compliance, and
the Collapse of the Soviet Command Economy. Department of Economics. University
of Warwick. March 2001; Kontorovich V. The Economic Fallacy // The National
Interest. 1993. Vol. 31. p. 44; Pryce-Jones D. The War that Never Was: The Fall
of the Soviet Empire 1985-1991. L.: Weidenfeld
& Nicolson, 1995. For more on similar views voiced in Russia, see: From
Catastrophe to Rebirth: Causes and Consequences of the Destruction of the
U.S.S.R. / Ed. I.P. Osadchy. Moscow: Bylina Publishers. 1999. p. 7.
[57] For more on the views of writers who related the downfall of the U.S.S.R.
to the policy designed and consistently pursued by the Reagan Administration,
see: Schweizer P. Victory: The Reagan Administration
’s secret strategy that hastened the collapse of the Soviet Union. N.Y.: Atlantic
Monthly Press, 1994. p. 198.
[58] M. Kudrov estimates the Soviet Union’s aid to socialist countries at $20 billion a year. N. Ryzhkov’s figures for the period 1986-1989 give about the same result. According to
Western researchers, the Soviet Union
’s aid to Cuba alone added up to between $6 billion and $7 billion a year. N.
Ryzhkov
’s figures confirm these estimates as well. See: Kudrov V.M. The Soviet Economy
in Retrospect. Moscow: Nauka, 2003. P. 59. Ryzhkov N.I. Ten Years of Great
Upheavals. Moscow: Book. Education. Charity Association, 1995. p. 232. True,
conversion of those amounts into real dollars would be at least controversial.
Arms supplies were an important part of the aid.
[59] Shlykov V. What Killed the Soviet Union? American Intelligence on Soviet
Military Budgets // Military News. 2001. No. 8.
[60] Odom W.E. The Collapse of the Soviet Military. New Haven London: Yale
University Press, 1998. p. 105.
[61] For arguments in favour of military hardware inventories being built up in
peacetime because arms production was unlikely to be stepped up after the start
of a modern-age war, see: Sokolovsky V.D. Military Strategy. Moscow:
Voyenizdat, 1968. pp. 387 and 388. According to Colonel General A. Danilevich,
former deputy chief of the General Staff:
“We had a considerable advantage in conventional arms. In 1991, we had 63,900
tanks (apart from our allies
’ armour), 66,900 artillery pieces, 76,500 combat vehicles and armoured personnel
carriers, 12,200 warplanes and helicopters, and 437 large fighting ships. We
had six times as many tanks as NATO had.
” See: Shlykov V. What Killed the Soviet Union? American Intelligence on Soviet
Military Budgets // Military News. 2001. No. 8. p. 21
[62] Shlykov V. What Killed the Soviet Union? American Intelligence on Soviet
Military Budgets // Military News. 2001. No. 8.
[64] Marx K. The Eighteenth Brumaire of Louis Bona-parte // Marx K., Engels F.
Works. 2nd edition. Moscow: State Political Literature Publishers, 1961. Vol.
16. p. 377.
[65] Khrushchev N.S. Construction of Communism in the U.S.S.R. and Development
of Agriculture. Speeches and Documents: In 5 volumes. Moscow: Gospolitizdat,
1962. Vol. 1. p. 155.
[66] Matiukha I. (chief of the budget statistics department, U.S.S.R. Statistics
Board). A memorandum to the CPSU Central Committee. Results of a survey of
personal budgets in nine months of 1962 and the effect of increases in retail
prices of meat, meat products, and butter on a family
’s budget. December 21, 1962. RGANI. Folio 5. List 20. File 310. Pages 122 and
125-128.
[67] For more on the problems confronting the Soviet leadership, beginning with
Khrushchev, that stemmed from the policy of maintaining stable prices for
consumer goods, especially food products, see: Millar J.R. An Economic Overview
/ J.Cracraft (ed.). The Soviet Union Today: An Interpretive Guide. Chicago:
University Chicago Press, 1983. pp. 173-186.
[68] “Between 1961 and 1985, money supply (M2) was rising at an annual rate of around
10%. In the early 1960s, the nominal GDP growth rates were falling behind the
money supply growth rates by a factor of approximately 1.5 to 2 in the second
half of the 1960s, and particularly in the 1970s, and by a factor of 3 in the
first half of the 1980s. The economy was rapidly soaking up cash, contributing
to a fast growth in the M2 money supply relative to GDP. In particular, M2 took
up 22.8% of GDP in 1961, 29.5% in 1970, 44.2% in 1980, reaching 52.6% in 1984.
By 1980, farm market prices had grown to 2.57 times government procurement
prices for similar goods.
” See: Illarionov A. Attempts at Financial Stabilization in the U.S.S.R. and in
Russia. 1995 г. www.budgetrf.ru.
[69] An except from Minutes No. 28 of the CPSU Central Committee’s Presidium meeting on July 9 and 12, 1956, on economic aid to Poland: “Supply it [Poland] with everything they need – jute, wool, and all that. If they want bullion, it will also be supplied.” See: RGANI, Folio 3. List 12. File 1005. Pages 1-2 ob. Quoted in: Presidium of
the CPSU Central Committee. 1954-1964. Draft Records of Meetings. Shorthand
Records. Resolutions. Vol. 1. 2nd ed. / Chief Editor А.А. Fursenko. Moscow:
ROSSPEN, 2004. p. 148.
[70] Slavkina М.V. Triumph and Tragedy: Development of the Oil and Gas Complex
of the U.S.S.R. in the 1960s to the 1980s. Moscow: Nauka, 2002. pp. 45 and 70.
[71] According to N. Bronin: “He could say to a ranking official’s face: ‘You are an adventurist. Do you know where you are leading the country? Do you
think of the consequences of what you are doing?
” See: V.D. Sashin’s 85th Birthday. Materials of the Anniversary Conference. Moscow, July 22, 2001.
Moscow, 2002. pp. 38 and 39.
[72] Interview with V.I. Graifer. Quoted in: Slavkina M.V. Triumph and Tragedy:
Development of the Oil and Gas Complex of the U.S.S.R. in the 1960s to the
1980s. Moscow: Nauka, 2002. P. 143.
[74] In 1977, the CIA made public a report in which it predicted an impending
fall of oil production in the Soviet Union in the 1980s. See: The International
Energy Situation: Outlook to 1985. Central Intelligence Agency. April 1977;
Prospects for Soviet Oil Production. Central Intelligence Agency. Washington,
D.C.: April 1977.
[75] The Politburo’s meeting of March 17, 1979, was summed up by N. Kosygin: “We all are at one – we will not let go of Afghanistan.” Following a conversation with N. Taraki, who bluntly demanded that Soviet
forces be sent to Afghanistan immediately, the mood changed. It was clear now
that it was not just military, or technical, or economic aid; it was committing
Soviet forces. A. Gromyko then said:
“I fully support comrade Andropov’s proposal to rule out a measure such as introduction of our troops into
Afghanistan. The army is unreliable there. Our army then will be the aggressor
if it goes to Afghanistan. Who will it be fighting there? Yes, the Afghan
people, and they will have to be fired at.
” Yu. Andropov: “I think, we must hold off sending our troops in. Sending our troops there will
be fighting the people, crushing them under our tank tracks, and firing at
people. We will be seen as aggressors, and we cannot do that.
” See: RGANI. Folio 89. List 25. File 2. Pages 10, 15, and 24. All this was true,
of course, but this did not prevent the Politburo, in December 1979, from
sending four divisions and four brigades 150,000 strong into Afghanistan and
killing its President Amin. See: Bukovsky V. The Moscow Trial. Paris-Moscow:
Russian Thought Publishers, MIK, 1996.
http://www.belousenko.com/wr_Bukovsky.htm. Part 2. p. 49. The final decision
was made at a meeting called by L. Brezhnev on December 26, 1979. See: RGANI.
Folio 89. List 14. File 31. Pages 1 and 2. After the Soviet forces entered
Afghanistan, the Politburo meeting on January 8, 1980, decided to increase the
manpower ceiling of the USSR Armed Forces by 50,000 troops. See: Resolution of
the CPSU Central Committee and the U.S.S.R. Council of Ministers of January 2,
1980, to Increase the Numerical Strength of the USSR Armed Forces. Excerpt from
Minutes No. 177 of the meeting of the CPSU Central Committee
’s Politburo of January 2, 1980, No. P177\239.
http://www.2nt1.com/archive/pdfs/afgh/177
–80–2.pdf.
[76] Experts were well aware, as early as the mid-1980s, of the risks arising
from the Soviet Union
’s continued dependence on the play of oil market forces to finance imports of
grain and spare parts for its manufacturing industries. See: Chadwick M., Long
D., Nissanke M. Soviet Oil Exports: Trade Adjustments, Refining Constraints and
Market Behaviour. Oxford: Oxford Institute for Energy Studies, 1987.
[77] Baibakov N.K. Forty Years in Government. Moscow: Respublika, 1993. pp.
129-134.
“The old financing scheme being no longer fit for us, we were forced to resort to
new,
‘unconventional,’ ways, such as personal deposits with savings banks and funds in businesses’ accounts that we started using, if only in part, to cover budget spending.” Ibid, p. 134.
[78] Crossman G. Roots of Gorbachev’s Problems: Private Income and Outlay in the Late 1970s. /Gorbachev’s Economic Plans. Study Papers Joint Economic Committee, US Congress. Vol. 1.
Washington, November 23, 1987. pp. 213-229.
[79] The data have been taken from the statistical yearbooks The National
Economy of the U.S.S.R. for different years. Moscow: Goskomstat. There is no
certainty about the accuracy of these data. In so sensitive an area, Soviet
official statistics might be tampered with. Still, they convey a general
picture of events and the rapid growth in oil exports.
[80] Memorandum of Yu. Andropov (Chairman of the State Security Committee under
the U.S.S.R. Council of Ministers) to L. Brezhnev, General Secretary of the
CPSU Central Committee, on the secret meeting between the KGB station chief in
Lebanon with W. Haddad. April 23, 1974, No. 1071-А/ОВ.
http://www.2nt1.com/archive/pdfs/ terr-wd/plo75a.pdf. In another circular to L.
Brezhnev concerning deliveries of arms to the Palestine Liberation
Organization, Yu. Andropov called W. Haddad a trusted KGB informant. See:
Memorandum of Yu. Andropov (Chairman of the State Security Committee under the
U.S.S.R. Council of Ministers) to L. Brezhnev, General Secretary of the CPSU
Central Committee, on the transfer of a shipment of foreign-made arms and
ammunition to W. Haddad. May 16, 1975. No. 1218-А/ОВ. http://www.2nt1.com/
archive/pdfs/terr-wd/plo75d.pdf.
[81] Chadwick M., Long D., Nissanke M. Soviet Oil Exports: Trade Adjustments,
Refining Constraints and Market Behaviour. Oxford: Oxford Institute for Energy
Studies, 1987. p. 136.
[82] Schweizer P. Victory: The Reagan Administration’s secret strategy that hastened the collapse of the Soviet Union. N.Y.: Atlantic
Monthly Press, 1994. pp. XXVI, 6-12, and 26-32; Strayer R. Why Did the Soviet
Union Collapse? Understanding Historical Change. N.Y.-L.: M.E. Sharpe, 1998. P.
127.
[83] For more on the socialist countries’ finances and hard currency reserves (as at mid-year 1988), see: pp No. 4013 of
February 24, 1988). RGAE. Folio 2324. List 33. File 696. Pages 4 and 5.
[84] See. Memorandum from Yu.A. Ivanov (Board Chairman of the U.S.S.R.
Vneshtorgbank) to Comrade N.V. Talyzin (Chairman of the Council for Mutual
Economic Assistance Commission of the Presidium, U.S.S.R. Council of
Ministers). Information on hard currency transactions entered into by Bulgaria,
Cuba, and Czechoslovakia with capitalist countries and banks, and on other
issues raised during the briefing at the U.S.S.R. Vneshtogbank. April 28, 1984.
GARF. Folio 5446. List 144. File 79. Pages 36 and 37.