Russia 5.1 Economic weaknesses and failure of reform

What were the long term economic weaknesses within the USSR?

Low labour productivity ... e.g. America farms 6x more productive

Waste

Not modernised - agriculture, transport, storage facilities

Massive defence spending

Centralisation/poor administration

Give two statistics to demonstrate waste in the Soviet economy

Early 1980s - Gosplan demanded the production of 400,000 tractors every year

At least 20% were never used

1986 - Gosplan estimated that 12% of machinery was never used

Give a statistic to show the magnitude of military spending

1985 - defence spending was 17% of GDP

How did Gorbachev try to tackle alcoholism?

May 1985 - state production of alcohol cut by 50%

55,000 Party members assigned to task force to stop illegal production of alcohol

Why did Gorbachev's anti-alcohol campaign fail?

Alcohol consumption remained high

Soviet citizen drank samogon (illegal alcohol)

Government alcohol revenues fell by 67 billion roubles (9% of GDP)

What was acceleration?

Uskorenie

Investment to modernise the economy

It was at the heart of the Twelfth Five Year Plan (1986-90)

Why did acceleration fail?

Oil price fell and Soviet oil revenues fell by more than two-thirds, so Gorbachev financed acceleration by borrowing from the West

Government debt rose from $18.1 billion in 1981 to $27.2 billion in 1988

Gorbachev invested in energy production, ignoring advice of experts to invest in high-tech machinery

What economic reform was made in late 1986?

November 1986 Law on Individual Economic Activity

Legal to make money from small-scale work e.g. private teaching, repair and maintenance

What law was introduced in 1987? What did it do?

1987 Law on State Enterprises

Devolved power from Gosplan to factory management

Managers could set prices, wages and output levels (other than government orders)

Enterprises were self-financing and the government would not prop up unprofitable ones

Higher prices meant the government had to pay more for goods, increasing government debt

What law was introduced in 1988? What did it do?

1988 Law on Cooperatives

Legal to set up private companies

Almost 200,000 cooperatives by 1990

They were subject to a lot of red tape and restrictions

Only allowed to operate in some sectors

Prices were capped by the government

When was Gosplan abolished?

1990

Why were there food shortages in 1990? Give an example

Central planning system was removed, leaving no effective system to distribute goods

E.g. 1990 Soviet farms produced 218 million tons of grain, but it was not distributed effectively

What happened to GDP during the Twelfth Five-Year Plan?

GDP fell by 4%

Why did prices rise during 1990?

April 1990 - Gorbachev cut subsidies(a sum of money granted by the state or a public body to help an industry or business keep the price of a commodity or service low) for basic products

E.g. Price of beef rose by 250% between January and April

What were the political consequences of price rises?

Gorbachev's approval rating fell from 52% (Dec '89) to 21% (Nov '90)

Number of strikes increased (1991 - almost 7 times more strikes than in 1990)

What was the 500 Day Programme?

Plan for privatisation and full marketisation in under 2 years, published in August 1990

Yeltsin loved it

Gorbachev initially backed it, but backed down under pressure from communist hardliners

Never fully implemented - Gorbachev didn't act decisively

Some of its recommendations were implemented, but without a clear time frame

Give a statistic to show economic decline in 1991

Oil production fell by 9%