Economic policy in Gorbachev’s Soviet Union

Economic policy in Gorbachev's Soviet Union did however progress through a number of marked stages as circumstances changed. The first stage was referred to as Uskoreniye, or acceleration. Walker calls this period merely a "prelude to reform," and involved measures such as re – directing investment, a modest increase in the private sector and moral campaigns such as improved discipline at work (which Andropov had begun) and combating alcoholism, a major problem in the USSR. The idea was to drive the USSR away from the inertia which had set in since Khurushchev had left office in 1964.

This however intrinsically involved an upset in the comfortable familiarity which today many Russians long for, as necessary as the upset may have been. There was a degree of improvement in this period, growth of around 2 – 3%, but nowhere near the rate of 45% his promises I referred to earlier required. The prohibition of alcohol had a major effect in reducing state revenue however, and falling world-wide oil prices too played a significant part, meaning the increased investment in agriculture and other failing sectors could not be maintained.

The second phase of economic reform then had to drive deeper at the root of the USSR's problems. These more fundamental changes intrinsically required a simultaneous political dimension if they were to succeed. Political and economic reform at this stage were not only both mutually necessary and beneficial, but practically inseparable. Foreign trade began to be introduced on a much wider scale from early 1987, a move that would have been impossible without Gorbachev's skill in foreign relations and his shrewd diplomacy.

His 1984 visit to Britain for example had greatly impressed Prime Minister Thatcher. "Someone we can do business with," was her estimation, all the more striking for her and her government's particularly unsympathetic view of the Soviet Union and its ideology. This groundwork was essential for The USSR's gradual integration into the capitalist world economy. The Law on State Enterprises, which came into operation in January 1988 greatly reduced the power of state planners and allowed company directors to tailor their production, via the discipline of the marketplace, to the demands of consumers.

Profit could be controlled at the boss's discretion, a crucial shift from the downward flow of directives and output targets from Moscow that had characterised Soviet business practise previously. Nevertheless, the system was still inherently 'Soviet,' albeit in a slightly modified way. The 'commanding heights' of the economy, to use Lenin's phrase, were still state controlled, as were elements of business such as the hiring and firing of staff.

Gosplan, the body which developed the plans and directives for the economy, still existed in 1987 and was continuing to develop plans for the economy. "These plans, however, were to be indicative rather than directive, that is to say, a somewhat flexible target, seeking to reflect both industrial and consumer demands. " (M. Crouch, Revolution and Evolution, Philip Allen, 1989) This was an attempt at the 'third way,' in-between capitalism and socialism.

As realistic and workable however as it seemed on paper, from the 1st of January 1988, the performance of the Soviet economy plummeted to new lows. Inexperienced directors, over – ambitious promises (Gorbachev had intended 60% of business to change over to his new system), spiralling prices thanks to monopoly domination and rapidly increasing unemployment (virtually unknown in the old Soviet Union) created an atmosphere of confusion and dislocation reflected in high inflation and stunted economic growth.

The utter failure of this period was acutely illustrated by the ridiculous anachronism of ration cards and serious food shortages in 1990 – 91. The economist Anders Aslund quotes from a Russian study of foodstuff availability, which illustrated that "… the general availability of basic foodstuffs fell from 90% in 1983 to 22% in 1989 and to 11% in the middle of 1990. " (A. Aslund, Gorbachev's Struggle for Economic Reform, Pinter, 1991, p. 183) The budget deficit was growing at speed and the USSR was fast approaching bankruptcy.

The absolute failure then of this third way in the Soviet Union, stemming from internal contradictions in the economic system and its radical and unprecedented departure from the norms of the Soviet experience thus far, encouraged the third and ultimately final step away from Communism. Even as early as June 1988, government economist Leonid Abalkin considered that "a radical breakthrough in the economy has not occurred and [the economy] has not departed from its state of stagnation. " (Pravda, 30th June 1988, quoted ibid, p. 203)

It took another two years however until Gorbachev accepted this failure, formally announced at the 28th Party Congress in June 1990. A group of radical (i. e. liberal / capitalist) economists, chaired by Shatalin and adopting his name, was assembled to prepare a plan for the Soviet Union to become a market driven liberal democratic society. This is considered by Aslund as the real turning point for Soviet economic policy. "… the USSR had never seen a reform programme that was as concrete, comprehensive or radical.

The word socialism was not even used. " (ibid, p. 209) The 400 – day programme (known publicly as the 500 – day programme because it sounded better) which they produced included plans for a convertible rouble and a speedy push towards a capitalist economy. Conservatives (read old – style – Communists) had by August however successfully pushed for a watered down version of the programme, which involved state intervention in keeping prices artificially high in an attempt to reduce the USSR's budget deficit.

By 1992 however, when the economy was supposed to have improved, it was still in a dire state. Boris Yelstin's understanding of the problems encouraged lead him to argue for tighter political control while economic reform was taking place – the Shatalin programme would inherently involve a temporary (it was predicted) decline in living standards, something that Gorbachev in the new USSR of glasnost would have to answer for.

Others too do not see the two elements as necessarily opposed. Peter Hauslohner postulates that "… a substantially more decentralised, deregulated and market – reliant economy… [does] not neccessarily mean a retreat from socialism, an outcome better described as revolution rather than reform. " (P. Hauslohner, Gorbachev's Social Contract, in The Gorbachev Debate, Humanities Press International, 1989, p. 85) As Archie Brown argues however, this is a flawed argument.

'Socialism' as understood in the Soviet Union however required an overhaul in political culture, it required an instinctive feel for freedom and democracy that demanded substantially more radical change. It was rather the entrenched old guard in the Soviet Union who held reforms back and stopped them from working effectively, or, in an essentially similar vein, that problems in the USSR were too systemic – it required political and economic overhaul if not a liberal revolution.

Without Gorbachev's democratisation of Soviet society, the conservatives in the party (who occupied the peak of the Communist political hierarchy and were therefore very powerful) may have crushed the reforms completely – I will discuss these reforms in the next section. A shift of power, from the government and bureaucracy to the people, was the necessary remedy – economic and political reforms had to go hand in hand if either was to succeed properly.