Looking Back a Quarter Century after the USSR’s Collapse
fpri.org/article/2016/12/looking-back-quarter-century-ussrs-collapse/
December 21, 2016
E-Notes
Chris Miller
Chris Miller is a Fellow at FPRI’s Eurasia Program where he serves as the editor of the Baltic
Bulletin. He is also the Associate Director of the Brady-Johnson Program in Grand Strategy
at Yale University.Read More
From THE STRUGGLE TO SAVE THE SOVIET ECONOMY: MIKHAIL GORBACHEV AND
THE COLLAPSE OF THE USSR by Chris Miller. Copyright © 2016 by The University of
North Carolina Press. Used by permission of the publisher. You can purchase the book here.
On 7:32pm on December 25, 1991, a red flag with a golden hammer and sickle
was lowered for the last time from the Kremlin. It was replaced with the Russian
tricolor: white, blue, red. “I hereby discontinue my activities at the post of
President of the Union of Soviet Socialist Republics,” Mikhail Gorbachev
announced bitterly. The last leader of the USSR had learned several weeks
earlier the leaders of Russia, Ukraine, and Belarus—formerly constituent
republics of the Soviet Union, now independent countries—had declared an end
to the Soviet Union. They had also cast Gorbachev out of a job.
The demise of the Soviet Union set the stage for the emergence of a post-Cold
War world, an order that is currently going through rapid change, perhaps even
dissolving. Yet the Soviet collapse, the foundational event of the past quarter
century of international politics, is an event that we still poorly understand. How
did one of the world’s two great superpowers dissolve in only several years?
What accounts for the terrible legacy it bequeathed contemporary Russia, of a
shoddy economy and authoritarian politics? And what, more broadly, does the
end of the Soviet Union tell us about the synthesis of democracy and
capitalism? That pairing long defined the “Pax Americana” of the past quarter
century, yet today it looks as fragile as at any point since the Soviet flag was brought down from the Kremlin.
The Soviet Union’s collapse transformed the lives of Soviet citizens, dividing them into fifteen separate countries. It
was also a test, many people believed, of the most influential political theory to emerge from the transition from Cold
War to post-Cold War: Francis Fukuyama’s notion of the end of history. Fukuyama proposed that with the Soviet
collapse, ideological conflict had come to an end; capitalism and democracy were the inevitable victors. But the
Soviet Union itself always fit uncomfortably within that narrative. Moscow had liberalized politically, but suffered an
economic collapse, and lost its empire in the process. China also began the 1980s committed to a centrally-planned
economy and authoritarian governance. Unlike Gorbachev, Chinese leader Deng Xiaoping opted to ditch
communism but keep authoritarianism, demonstrating on Tiananmen Square that he was willing to shed blood to
keep control. The Soviet Union appeared to follow Fukuyama’s advice but did poorly; China ignored it, and
experienced three decades of record-setting economic growth.
One might conclude—as have authoritarian elites in China and Russia—that the Soviet collapse proves that
democracy is dispensable. Instead of democracy, the authoritarian right suggests, the Soviet Union should have
kept tight political control and focused instead on economics. Soviet General Secretary Yuri Andropov attempted to
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implement such a program of authoritarian modernization during the early 1980s, and current Russian President
Vladimir Putin is said to believe that, had Andropov not died after just a year and a half in office, he would have
revitalized the country’s economy. And Chinese President Xi Jinping—who is widely believed to admire Putin’s
leadership methods, and who many fear is himself making a bid for lifelong rule—regularly exhorts China’s
governing cadres to learn the lessons of the USSR. The prime lesson, he believes, is the risk of unclenching the
Communist Party’s iron fist.
Behind this, however, is a faulty interpretation of Soviet history. The notion that political and economic reforms were
separate processes misunderstands Soviet politics. Politics and economics were interlinked. The most divisive
political debates during the perestroika period were about the distribution of economic resources. Gorbachev came
to embrace political reform in large part because the Communist Party structure proved so resistant to economic
efficiency. Where the Soviet Union diverged from China, it was because powerful interest groups obstructed
Gorbachev’s policies.[1] The military and KGB staved off serious budget cuts until the final year of perestroika by
threatening and eventually launching a coup to protect their privileged position. The farm lobby tenaciously opposed
letting individual farmers lease land. Industries ensured that their subsidies were not cut. The energy industry was
only partially cleaned up; the Soviet gas industry—today called Gazprom—survived perestroika basically unscathed,
and even now faces only limited pressure to act efficiently. By some estimates, Gazprom today squanders billions of
dollars each year in waste and corruption.[2] The gas industry was not spared from demands for increased
efficiency out of ignorance or ideology; it was spared because it was too powerful to touch.[3]
The influence of interest groups was particularly relevant to the most significant divergence between the Soviet
Union and China: fiscal and monetary policy. By the late 1980s, balancing the USSR’s budget was impossible.
Interest groups demanded fat subsidies, and Gorbachev struggled to resist. Soviet leaders knew that the blankcheck credits given to farms and industries caused debilitating shortages and threatened skyrocketing inflation. By
1991, food supplies in urban areas, even in Moscow, were at a dangerously low level, as inflation wreaked havoc
with supply chains and distribution networks. Key politburo leaders—from liberals such as Gorbachev to Stalinists
like Yegor Ligachev—understood that a rapid expansion of the money supply caused shortages in official stores and
inflation on the black-markets. They disagreed, however, about how to restrain growth in the money supply.
Gorbachev wanted to slash spending on subsidies and the military, but he feared the political consequences—and
interest groups successfully opposed many cuts.
Gorbachev would have preferred to coopt the interest groups, but most rightly sensed that a market economy held
few benefits for them. Collectivization and decades of subsidies had left the Soviet agricultural system so far from
efficient practices that even today, a quarter century after the reintroduction of capitalism, Russian farms are still
struggling to adjust. Farm bureaucrats and agricultural workers were right in concluding that market reforms held
few potential benefits for them. The military, too, saw no point in reform. They already had access to top technology,
and their funding levels were already sky high. Moreover, military leaders genuinely believed that the Soviet Union
needed high defense spending to stave off a capitalist assault. Many industries, too, realized that their production
processes lagged far behind Western countries, even as their labor costs were significantly higher than poor Asian
producers. They, too, rightly sensed that capitalism offered as much risk as reward. It is hardly surprising that these
groups all sought to subvert Gorbachev’s efforts at reform.
They often succeeded. It was no secret Gorbachev did not wield absolute power in the Soviet Union, or that interest
groups were able to delay or derail reforms. “We are much more entrenched in conservatism than the Chinese,”
Fedor Burlatsky explained to a journalist in 1987.[4] Compared to China, economic interest groups in the Soviet
Union were more powerful and more vigorously opposed change. In China there was no agricultural lobby that
opposed decollectivization; instead, Chinese peasants actively fought for control over their farms.[5] Chinese
industries, like those in any country, pushed for subsidies and government support, but manufacturing played a
smaller role in China’s economy and politics than in the Soviet Union, so industries were unable to undermine
change.
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Most importantly, Deng Xiaoping faced no threat from the security services. Indeed, one of Deng’s first moves upon
taking power in China was to slash military spending, proving that he controlled the military, and not the reverse.
China’s army received 10% of industrial investment in the late 1970s, but less than 6% by 1986.[6] The immense
power of the Soviet military and KGB meant that such a move in the USSR was inconceivable. Gorbachev was
unable to seriously cut the military budget. In the years immediately before he became General Secretary—when he
was, as a Politburo member, among the top political leaders in the country—Gorbachev was not even allowed to
know details about the defense budget, because the figures were classified.[7] The pervasive power of the Soviet
security services was not something Gorbachev could ever have changed quickly. The surprising thing is that he
managed to change it at all.
The vast power of the Soviet Union’s economic interest groups—clinging to their privileges, obstructing efficiency—
was the key factor in the polarization of Soviet politics and the collapse of the country’s economy. Because these
interest groups dominated the Communist Party, Gorbachev never had the option of using the party as a tool of
reform. The Communist Party and the patronage networks that dominated it were very institutions that most needed
to be cut down. The Soviet economy could escape stagnation only if the party’s and the interest groups’ privileges
were slashed. Political liberalization, much derided by the authoritarian right, was Gorbachev’s only hope of limiting
these groups’ clout. Democracy, Gorbachev told the Politburo, “guarantees our chosen path” by redistributing power
away from the bureaucracy and entrenched interests, and toward representatives of the people.[8] It was a risky
bet, but what other option did he have? Gorbachev’s democratization efforts are often criticized for obstructing
economic policymaking. The opposite is true: economic changes were only possible insofar as Gorbachev shook up
Soviet politics. Glasnost facilitated widespread public criticism of cosseted elites, while political restructuring reduced
the lobbies’ influence.[9] Without these changes, Gorbachev could not have run the risk of far-reaching economic
reforms. He would have been toppled immediately if he had.
Did a different path exist, one that would have seen the Soviet Union reform its economy without either an
inflationary spiral or a collapse of its tax system—and ultimately, the dissolution of the state? Clearly Gorbachev and
his allies were wrong to bet so heavily on the anti-alcohol campaign in 1985.[10] Perhaps he could have tried harder,
too, to oppose or redirect some the capital spending associated with the “acceleration” program. Acceleration had
no positive economic effects, and it caused the first, decisive uptick in the money supply. After this point the money
supply galloped inexorably higher, due to political conflicts that were beyond Gorbachev’s limited power to resolve.
Lacking political capital, how could Gorbachev hope to control capital investment? His reforms suffered from a basic
dilemma: the sectors that most needed to change were also the most able to obstruct reform. It is hard to see how
the Soviet Union’s vast industrial wasteland could have been restructured in an organized, consensual manner.
The only force that proved strong enough to break the military-industry-agriculture coalition that dominated Soviet
politics was the final downfall of the USSR. Until mid-1991, the three economic lobbies were bound together by
interest, ideology, and inertia. Had Gorbachev been able to divide the coalition partners, playing one interest group
against the others, he might have had more success in asserting control over the Communist Party and the Soviet
state. But a strategy of divide and rule proved impossible. So long as they dominated the Communist Party, and so
long as the Party controlled the state, these groups’ shared interests overwhelmed any tactical alliance Gorbachev
could have conceivably offered. In the years after the collapse of 1991, with the military divided and discredited by
the failed coup, and with industry and agriculture writhing under the pain of inflation and depression, Russian
President Boris Yeltsin finally managed to split the groups, coopting much industrial support while slashing farm
subsidies and cutting military funding.[11] But even though the Soviet Union by then no longer existed, Yeltsin still
faced several years of resistance in his attempt to break the lobbies’ stranglehold on the federal budget and on the
central bank. Only after Yeltsin shelled parliament in 1993, pushing the country to the brink of civil war, was the
military-industry-agriculture coalition finally destroyed.
Was the Soviet Union simply unreformable? China’s experience proved that there was nothing inherent in MarxismLeninism, in autocratic political systems, or in centrally-planned economies, that makes a transition to a market
economy impossible.[12] In the USSR, to be sure, decades of wasteful investment left the country a burdensome
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economic inheritance. Yet the most damaging legacy of the command economy was not economic inefficiency, but
political sclerosis. The Soviet system proved unreformable not because its economic problems were
insurmountable, but because it entrusted vast political power to groups that had every reason to sabotage efforts to
resolve the country’s economic dilemmas. In part, this situation was the result of the USSR’s relative wealth. When
Deng took power in China, for example, the country’s farmers were on the brink of starvation. No matter what Deng
did, the state of China’s countryside could hardly get worse, so China faced no built-in lobby that opposed change.
By contrast, the USSR was stuck in a middle-income trap: many Soviet citizens, especially among the elite, lived
decent lives that were threatened by change. Whereas Chinese farmers embraced decollectivization, Soviet
farmers—who had benefited from several decades’ worth of farm subsidies—found that Gorbachev’s agriculture
policies offered risks as well as rewards. A similar mechanism obstructed change in Soviet manufacturing and
service enterprises, too.
Economic efficiency was also restrained by the relative leniency of the Communist Party during the postwar period.
Under Stalin, the party had few interest groups, because the Soviet dictator enforced his writ through purges and
mass killings. Enterprise managers dared not miss production targets, on pain of death. The rapid rotation of cadres,
facilitated by Stalin’s purges, reduced the influence of patronage networks. Brezhnev’s policy of “stability of the
cadres” ended the use of the firing squad to encourage effective management. That made the Soviet system more
humane, but it degraded incentives to work efficiently. Bureaucrats and managers now faced few reasons to act
effectively: their firms could not go bankrupt, their salaries did not depend on performance, and they received
promotions based on political connections. In China, the Cultural Revolution of the 1960s had shaken up the Party
and the bureaucracy, cutting back the strength of interest groups and paving the way for Deng Xiaoping’s market
reforms. In the Soviet Union, by contrast, the 1960s and 1970s saw patronage networks and interest groups solidify.
Gorbachev inherited a system in which economic lobby groups played a larger role than ever before. Yet his powers
as head of the Communist Party were weaker than any Soviet leader since the Bolsheviks took power in 1917.
It was not inevitable that combining central planning and single-party rule would create a system with such
fundamental flaws. Different decisions in the decades before perestroika might have avoided such disastrous
results. Stalin need not have collectivized agriculture. The Kremlin could have chosen to build its massive factories
in concentrated regions rather than spreading them across the frozen wastelands of Siberia. The Communist Party
could have backed reforms proposed during the mid-1960s to make enterprises more efficient. Brezhnev could have
opted not to coddle Soviet farms with increasingly unaffordable subsidies. By the time Gorbachev came to power,
however, these choices had been made. There was no way out. The Soviet system gave power to a new ruling
class: generals, collective farm managers, and industrial bosses, all of whom beneftted from waste and inefficiency.
They dominated the Communist Party and hijacked its policymaking process, so that by the 1980s, there was no
longer a boundary between industrial lobbies and the Communist Party itself.
The political clout of these interest groups proved far more significant than anyone expected. Gorbachev’s legacy—
and the entirety of Soviet history during the perestroika period—cannot be understood without a clear view of the
vicious infighting that determined which policies were implemented and which were discarded. Documents from the
Soviet archives show that every perestroika-era policy was the result of conflict and compromise, a negotiation
process in which Gorbachev often held the weaker hand. As Gorbachev reminded George H. W. Bush in 1991: “We
need to reduce arms in a way that won’t make the army rise up.”[13] That was the dilemma, in a nutshell: to reform
the economy without angering the energy industries, or the farm bosses, or—most dangerous of all—the security
services. The threat of a coup, potentially violent, backed by regressive economic interests, was always lurking in
the background. That was a threat Deng Xiaoping never faced.
[1] Jeffrey Sachs and Wing Thye Woo, “Structural Factors in the Economic Reforms of China, Eastern Europe, and
the Former Soviet Union,” Economic Policy 9, no. 18 (Apr. 1994): 101-145.
[2] Anders Aslund, “Why Gazprom Resembles a Crime Syndicate,” The Moscow Times, Feb. 28, 2012.
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[3] This was true in the 1990s, too; Yeltsin’s Prime Minister Viktor Chernomyrdin was a gas industry veteran and
defended its prerogatives; see Thane Gustafson, Wheel of Fortune.
[4] Mark D’Anastasio, “Soviets Now Hail China as a Source of Ideas for Reviving Socialism,” Wall
Street Journal, Sep. 18, 1987.
[5] Zhou, China’s Long March to Freedom, ch. 1.
[6] Naughton, Growing out of the Plan, p. 88.
[7] Gorbachev, Memoirs, p. 147.
[8] Politbiuro, p. 202.
[9] “Vozmozhno li Ekonomicheskaia Reforma bez Perestroiki v Politike,” Voprosy Ekonomiki 1988, no. 6, p. 3-22.
[10] As Gorbachev himself now admits; see id. Memoirs, p. 218.
[11] Gaddy, Price of the Past.
[12] As Stephen Cohen has brilliantly shown in id. Soviet Fates and Lost Alternatives from Stalinism to the New Cold
War.
[13] Politbiuro, p. 695. Joseph Torigian’s forthcoming research illustrates why China was different.
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