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(END of the COLD WAR and the SOVIET UNION – continued)

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END of the COLD WAR and the SOVIET UNION (5 of 9)

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More Economic Troubles

On April 25, 1986, the nuclear power plant at Chernobyl (in the Ukraine 90 kilometers north of Kiev) exploded. The radiation killed hundreds of women and children, contaminated rivers and streams and ruined local agriculture. In the Soviet Union, public mistrust of nuclear plants dashed hopes of nuclear energy as an inexpensive source of power, and plans were laid instead for building new natural gas pipelines.

Grain harvests were good in the Soviet Union in 1986 and 1987, allowing the Soviet Union to reduce grain imports, but the economy continued to decline. Gorbachev's policy on alcohol was of little help. People were now waiting in longer lines for the diminished supply of drink. Retail stores were selling less alcohol, the government was receiving less from sales taxes, and brewing booze at home was increasing.

In response to reduced oil sales abroad, the government had the importation of consumer goods reduced. This left Soviet citizens with less to buy and further reduced revenues from sales taxes. The incomes of consumers had been rising, but with too little on the shelves for people to buy. And with too much money chasing too few goods, prices were rising. It was the opposite of what capitalist nations had faced in the Great Depression, when too little money was in the hands of consumers compared to what was available for purchase.

The Soviet government spending more money than it was acquiring in revenue was a disaster for the economy. To make up for the insufficient tax revenues, the government continued to print more money, increasing inflation. People were putting the money they could not spend into state savings banks – a bad place for money during inflation and a waste in that it was money not being invested in worthy enterprises.

Monetary policy was of little concern to Gorbachev and his advisors. New bureaucracies were created to oversee planning and investing at a more local level. Decrees were issued on quality production and completing projects on time. New laws were passed allowing managers to have more initiative. Producer cooperatives were allowed. Some joint ventures with foreign companies were authorized. But none of these were destined to turn the economy around.

The government tried to increase private farming by offering land to farmers for that purpose – land that could be farmed but not sold. But, unlike China, few people in the Soviet Union were interested in venturing into independent farming, some not sure that government favor toward private enterprise in agriculture was permanent. In 1987 the number who accepted the land grants increased, but many failed to make a success of it. Many of those who did succeed merely produced enough for their own subsistence. Overall, the move toward private farming remained unsubstantial, and the Soviet Union's agriculture remained largely collective.

More Failures and political reform, 1986-88

With Gorbachev's new bureaucracies the Soviet economy was even more of a tangle of confusion. After fifty years of being told what to do in petty detail, and afraid of initiative and risk, managers were not ready to take full advantage of production opportunities. There was ineptitude in investing. Demands made by planners were not in tune with production capabilities. Growth targets were missed by wide margins and projects remained uncompleted.

Until 1986 the Soviet Union had been criticizing China's economic reforms, but Soviet economists were now wondering why Chinese reforms were working better than Soviet reforms. One Soviet economist complained that the Chinese worked hard and that the Russians talked hard. One difference between China and the Soviet Union was that reforms in China began in the countryside with peasants taking to free enterprise with confidence.

In 1987 individual enterprises in the Soviet Union were given more freedom to make their own decisions regarding investments in production. In 1988 new priorities were given to the construction of housing and to modernizing industries that produced consumers goods. In 1988, Gorbachev made new political moves. His reforms were being opposed and frustrated by opposition from within the Communist Party and from local bureaucracies. Gorbachev responded by removing the Party from overseeing the economy. Meanwhile, Gorbachev was preparing to withdraw Soviet troops from Afghanistan.

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Copyright © 2000-2014 by Frank E. Smitha. All rights reserved.

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