University of Glasgow

Perestroika: Theoretical and Political Problems of Economic Reforms in the USSR Author(s): Vladimir Mau Source: Europe-Asia Studies, Vol. 47, No. 3 (May, 1995), pp. 387-411 Published by: Taylor & Francis, Ltd. Stable URL: http://www.jstor.org/stable/152568 . Accessed: 07/04/2011 22:33
Your use of the JSTOR archive indicates your acceptance of JSTOR's Terms and Conditions of Use, available at . http://www.jstor.org/page/info/about/policies/terms.jsp. JSTOR's Terms and Conditions of Use provides, in part, that unless you have obtained prior permission, you may not download an entire issue of a journal or multiple copies of articles, and you may use content in the JSTOR archive only for your personal, non-commercial use. Please contact the publisher regarding any further use of this work. Publisher contact information may be obtained at . http://www.jstor.org/action/showPublisher?publisherCode=taylorfrancis. . Each copy of any part of a JSTOR transmission must contain the same copyright notice that appears on the screen or printed page of such transmission. JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide range of content in a trusted digital archive. We use information technology and tools to increase productivity and facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.

Taylor & Francis, Ltd. and University of Glasgow are collaborating with JSTOR to digitize, preserve and extend access to Europe-Asia Studies.

http://www.jstor.org

EUROPE-ASIA STUDIES, Vol. 47, No. 3, 1995, 387-411

Perestroika: Theoretical and Political Problems of Economic Reforms in the USSR

VLADIMIR MAU
As PERESTROIKA RECEDES FURTHER AND FURTHER into the distance it is passing from the

sphere of direct political discussion and political battle into the field of scholarly research.Duringthe years of its existence the policy of perestroikawas both an object of general delight at the novelty and unexpectednessof the slogans it put forward and attractedsharp criticism (if not contempt) from broad circles of society for its inconsistencies and contradictions.Now the time has come to analyse it calmly in and as far as possible withoutprejudice, a way thatwas almostimpossiblea few years ago when emotionalresponsesto Gorbachev'snew course, or 'new political thinking', placed considerablelimits on the possibility of rationalcomprehensionof the policy. and This article analyses the interrelationship mutualinfluenceof the economic and political problemsof 1985-91, the years which markthe chronologicalbeginning and end of perestroika.In my opinion it was precisely at the interfacebetween economics events of that period occurred.Researchfrom this and politics that the most important should enable us to uncover the real roots of the decisions taken then by perspective the top leadership of the USSR, of the illusions and errors of the authorities,and ultimately of the results of the Gorbachevera. A numberof works have appearedin the West recently offering a detailed analysis of the history of perestroika.' This cannot be said of Russian scholars, however, for whom the perestroika years even now remain too near, too closely connected with both the social and the personalityproblems of today.2Of course, this also applies to the present author-it is not easy for a contemporaryand even participantin the events to be a dispassionate analyst. Bearing this in mind, however, I shall try to ensure that both the researchitself and the conclusions drawn from it are objective. The article falls naturally into two parts, corresponding to the two phases of perestroika-the waxing (1985-89) and the waning (1989-91)-or, in other words, the period of political illusions and hopes, followed by the country's relapse into the crisis that broughtthe USSR and the socialist economy to an end. Within these two sections we analyse the theoretical and ideological roots of perestroika, its basic economic and political components, the conception of the reforms and scholars' and politicians' discussions about them, the consistency with which the changes were implemented,the formationof a whole system of social conflicts, the economic policy decisions taken and the possible alternatives.
0966-8136/95/030387-25 ? 1995 University of Glasgow

388

VLADIMIRMAU

We examine the theoretical, ideological and political premises of the policy of perestroika, and the forms and mechanisms of its implementationin practice in the second half of the 1980s. In my opinion this course was the naturalconsequence of the developmentof economic theory and the concrete practice of 'socialist economic management',and the balance of forces in the Soviet leadershipled to the sequence of decisions and actions which make up the recent history of Russia. Of course, this does not mean either an apologia for the politicians involved and the decisions they took, nor an attemptto excuse or justify anybody. Our purposehere is to understand the premises and evaluate the consequences.3

The beginning of the transformation: doctrine and slogans Basic components of the conception of reforms

It was often arguedthat the reforms startedby Gorbachevin 1985 were spontaneous in character,and lacked any well formulatedconception worked out in advance.This is said to explain the inconsistentand at times even destructivecharacterof the policy
of perestroika.

Study of the works of political leaders is now an almost forgottenform of activity for Russian social scientists, especially economists. Nonetheless, this approachwill be importantat the beginning of our research. Analysis of Gorbachev's articles and speeches in 1983-84, when he occupied second or thirdplace in the Soviet hierarchy and was relatively free in his pronouncements,enables us to draw a number of conclusions about the formation of the conception of perestroika. Gorbachev's speeches precedinghis selection for the post of General Secretaryof the Central Committee of the CPSU show that throughout 1984 he was thinking intensely about the problems and difficulties of the Soviet economic policy system. And it is quite understandable that he sought answers to the challenges of the time within that system, in its ideological dogmas and the economic practices of the preceding decades. The term perestroika itself actually first appears in his March 1984 reportto the All-Union economic conference on problemsof the agro-industrial complex-Gorbachev's first big speech as the second person in the party.4It was also mentioned later, in December 1984, in Gorbachev's well known programmespeech with the characteristictitle 'The living creative work of the people'.5 The historical roots of perestroika go back to the slogan 'catch up and overtake', which was popular at the turn of the 1950s and 1960s, and even further, to the accelerated industrialisationof the USSR in the 1930s. The challenge was the backwardnessof the USSR comparedwith the developed countriesof the West in all dimensions of economic and social life. And the new Soviet leadership, whose political youth matchedthe Khrushchevian'time of hopes', considereditself ready to tackle ambitious economic and social tasks. (Talk of political reforms began later.) The transformation(perestroika)of Soviet society was conceived from the very beginning as a complex, multifaceted task. In accordance with the traditions of communist rhetoric, the aims of the reforms were proclaimed to be 'the further increasing of the welfare of the people, the improvementof the conditions of their materialand spirituallife'. This was given concrete form in the task of providingthe

PERESTROIKA

389

population with the necessary food and industrial goods and services, and the developmentof health care, culture and education. The solution of 'the problems of welfare' dependedin turn on two groups of tasks: on the one hand, a sharpincrease in the rate of growth of productive forces and, on the other, improvementof the economic mechanism. As far as the first was concerned, the emphasis was placed on deep structural transformation industry so as to accelerate the growth of machine building. The of to ran logic, originallyattributable Aganbegyan,6 roughly as follows. In orderto carry out any sensible social policy in conditions where world oil prices were falling and the armsrace was continuing,it was essential to ensure a minimumannualgrowth in national income of 4%. During the 11th five-year plan (1981-85), even accordingto official data, this figure had clearly not been reached. The possibilities of growth by drawing in new material and human resources were also practically exhausted-to achieve such a rate of growth of national income by extensive means required increasing the output of fuel and raw materials by 15% over the five-year period, raising investment by 30-40% and bringing up to 2 million additionalpeople into productioneach year. The only way that remained, quite naturallyfor anyone taking the technocratic approach,was 'substantialgrowth in the productivityof labour by the introduction of moder equipment and automation'.7For this purpose the target was set of increasingthe rate of growth of the machine-buildingsectors by 1.5 to 2 times within the next few years. The priority here was placed on accelerating the development of machine tool production, instrumentmaking, and the electrical and electronic industries. In other words, it was a question of shifting the centre of gravity in investment policy to sectors of the machine-building complex. This in fact corresponded to the interests of the most influential socioeconomic grouping by that time-the military-industrial complex. At the same time, the principaldistinctivefeatureof the 1980s was the supplementation of the technocraticby the socioeconomic approach.For the first time in official communistrhetoricthere was talk of activationof 'the human factor' as a condition of transformationof the whole system of production relations.8 Economists and politicians were requiredto define these aims more carefully and give them concrete content. And in practice it was these problems, not questions of the structural transformation the economy, that became the focus of economic discussions and of political battles.9 These problems also determinedthe key slogans of perestroika, forming its basic points and its distinguishingfeatures.Even the special terms that make the economic policy of the last phase of socialism clearly and easily recognisable can be said to have been devised for them. These slogans were: (1) Acceleration (uskorenie)-the need to induce dynamism in the development of productiveforces by concentratinginvestmentresourceson the machine-building sectors; of (2) Perestroika-the transformation productionrelations, changing the social and economic organisationof the late Soviet system;

390

VLADIMIRMAU

(3) The human factor-the need to humanise the system of social relations, to overcome the one-sided technocratic approach to solving economic and production tasks. It was this thesis that led somewhat later to the ideas of glasnost' and democratisation; (4) 'Integralsocialism'-the attemptat a theoreticalexplanationof the characterof the transformation that the existing system of social begun, on the understanding relationscould and must be transformed sufficientlydeeply to ensure the passage of socialism to a new stage of 'development', but without changing the very essence of the socialist system of economic management (which was already 'mature').'0

Search for an economic mechanism

In the mid-1980s the announcementof large-scale tasks of economic transformation could not be limited to technocratic aims. Since the time of Khrushchev, Soviet leaders putting forwardambitioustargets for a breakthrough the productionfront on that they be accompaniedby changes in the system of economic invariablyproposed incentives for the functioning of production."Naturally,this approachwas accepted entirely by Gorbachev, who for a number of years had been in close contact with economists working in the field of the 'theory of the socialist economic mechanism'. Equally naturally,the doctrinalbasis of economic policy was from the very beginning It highly contradictory. reflected both the contradictionsof the real political process, the struggle between different political groupings and interest groups, and the of inconsistency of the general conception of transformation the system in the form in which it had evolved by the mid-1980s. Above all there was the reproduction the traditional of partymechanismfor solving economic tasks through organisation of mass campaigns. Not for nothing did Gorbachevinitially draw open parallelswith the experience of acceleratedindustrialisation of the country in the 1930s. And, in accordancewith this analogy, there was talk of using the great mobilisationpotentialwhich was usually ascribedto the Soviet economic and political system thanksto its centralisedplanningmechanisms.'2As we can see, the Soviet leadership still retained vivid illusions from the early Soviet period, and reliance on them was a naturalsource of hope for the leadership. The policy of perestroika was also superimposedon to the set of traditionalideas concerningthe economic essence of the then existing system. The political economy of socialism, which had the characterof an all-embracingdoctrine, although subject to fully justified criticism for its scholasticism and divorce from reality, nevertheless formedthe foundationof the views of the Soviet partyestablishmentand its academic consultants.Even a cursory glance at the basic points of the early perestroika views of Gorbachevand his entourageis sufficientto reveal in them a whole list of subjects ('economic laws') treatedin textbooks on the political economy of socialism.'3 The necessity of perestroika, in accordance with the 'basic economic laws of socialism', was explained by the importanceof increasingthe welfare and satisfying the growing requirementsof Soviet man. The basic lever was to be centralised planning, which made it possible to ensure the conscious optimisationof economic

PERESTROIKA

391

growth and structuralchanges ('the law of planned proportionaldevelopmentof the nationaleconomy'). It was the improvementof planningat macro and micro level that was initially expected to solve the task of acceleration. The macroeconomic and investment structure model of perestroika was fully describedby the so-called law of faster growth of productionof means of production (and especially the 'active' component of the latter) than of objects of consumption. There was also talk of the need to improve the system of distributionaccordingto labour ('the law of distribution in accordance with the quantity and quality of labour'), which was reflected, on the one hand, in the relatively early liberalisation (decentralisation)of distributionmechanisms with a simultaneoussharp increase in The latterwas attemptsat state interventionin assessing the 'fairness' of distribution. most clearly expressedin the growing polemic concerningthe existence of non-labour incomes and the role of the state in eliminating them.14 Finally, the conceptual discussions among the political elite included continual references to the need to make use of commodity-money relations as an important lever to stimulate the development of productive forces. Similar public statements, however, were extremely cautious and were invariablyaccompaniedby qualifications about the changed natureof value mechanismsunder socialism and the inadmissibility of diminishing the leading role of the planning principle while making use of commodity-money relations. Yet the political economy of socialism as such was not the basis for further work on the theoretical foundations of the social and economic transformation. This role was taken by the theory of the economic mechanism, which represented a special section of political economy, formed at the turn of the 1960s and 1970s, which quickly became one of the most rapidly developing directions of Soviet economic thought. The roots of this model date back to the mid-1960s or, more precisely, to the 1965 economic reform, which representedthe most extensive pre-perestroikaattempt at radical improvementof the socialist system of economic management,to adapt it to conditions of the scientific and technicalrevolution.The actual attempt contemporary at reform was half-heartedand did not yield any notable lasting results. It was clear that on this basis both theory and practice had to advance furtheror returnmore or less to their initial state. Economic policy, for a numberof reasons, soon went into reverse-the partyleadership,having taken a few steps in the directionof the market, of was not able to decide on further transformation the economic system, since it understoodthe inevitability of supplementingeconomic with political liberalisation. For 'Shestidesyatniki' economists, however, who had grown up on the wide-ranging and open discussions of the 1960s, the following years became a time to refine the argumentsand mechanisms for implementationof future economic transformations. Insofar as the immutabilityof socialist ownership was a preconditionof theoretical speculation that was fixed in advance, realistically thinking economists soon found their own political (or ideological) niche: taking the thesis of the immutabilityof the fundamental basis of the socialist system as given and leaving these questionsentirely to the ideologized orthodox political economy (with all its laws enumeratedabove), these economists formulatedthe conclusion that there was a need for a fundamental 'improvementof the economic mechanism' and began to examine the latter as an

392

VLADIMIRMAU

independentobject of research,which could be analysed and reformed,leaving aside This was one of the most importantpoints; agreementon questions of ownership.15 such an approachgave a certain freedom of analysis but also imposed strict and potentiallyvery dangerouslimits, which would inevitablyhave an effect in the future. The logic of the notion of 'improvementof the economic mechanism' was based on the thesis of the need to stimulate the producer (economic agent) to develop productionand introducenew products.It was assumed that this could be achieved by broadeningenterprises'autonomyin making decisions about the volume and mix of output they produced, linking the prospects for expansion of productionand the material welfare of the workforce with the financial results of the enterprise's operations(profit on capital, profit rate on turnover). However, owing to the ineffectiveness of price as a control on the producerwhen all prices are fixed by the state, there was continual debate on the question of the system of economic indicators, as distinct from profit and profit rate, which would provide an objective measure of how far enterprises'operationscorrespondedto the requirementsof the economy as a whole and the users of their products. One such indicatorafter anotherwas advanced (usually volume indicators)and declared to be the instrumentof salvationfrom all the evils of both centralisedplanningand market spontaneity.This role was accorded consecutively to volume of output sold, net or normativenet output (NChP), and level of fulfilment of contracts.In a few very rare cases economists came near to formulatingthe thesis that mechanismsof competition needed to be 'included', but this always encountereddecisive political resistance.16
The primaryand crucial problems now are matters such as ways of acceleratingscientific and technicalprogressand all-roundintensificationof production;improvementof the forms of socialist ownershipso as to ensure a more and more organic union of the direct producer with the social means of production,strengthenhis feeling of being the collective owner of all the propertyof society, and activate and optimise a system of interests, with the overall nationalinterestplaying the leading role; developmentof the scientific basis and practice of planningthe economy as the chief means of implementationof the party's economic policy; improvementof the whole system of distributionrelations.17 This lengthy sentence contains all the basic elements of late socialist economic-ideological doctrine, the gist of the ideas and hopes of the reformers (both politicians and economists) of the mid 1980s. Thus the question of ownership was left as for all practical purposes fixed. It was thought that the economic mechanisms enumerated above would be able to operate on state enterprises, which, once freed from departmental tutelage and the instructions of the central plan, would behave like fully autonomous market agents. The existence or rise of other forms of ownership was regarded as a secondary factor-desirable but not capable of perceptibly influencing the position of state enterprises. These

approacheswere reflectedin both the argumentsand the process of implementingthe decisions on the development of the cooperative movement and individual labour activity in 1986-88. The role of real economic mechanisms as indispensable attributes of effective economic managementwas clearly underestimated. Above all there is the question of prices. Traditionally, Soviet economic literature did not consider the question of

PERESTROIKA

393

permittingfree price setting. At best there was talk of transitionto balanced prices, calculated according to mathematical models of the 'theory (system) of optimal Even with the problemposed in this functioningof the economy' (TOFEor SOFE).18 of its most prominentideologist-economistshastenedto dissociway, however, many ate themselves entirely from the aims they had not long before proclaimedwhen, at the initial stage of perestroika,the questionof introducinga system of balancedprices their unwillingness moved onto the practicalplane. In this they openly demonstrated to take the responsibilityfor an unpopularpolitical course. The scheme of 'improvementof the economic mechanism' which we have briefly examined left unsolved certainquestions which, as the course of perestroika showed, were of critical importancefor the economic system of socialism and its prospectsfor evolutionarymarket transformation. First, there was the absence of a real owner in the socialist economy, that is, of an economic agent interestedin strategicinvestmentat the micro level. Withoutthis, and without the tight centralised political control in the Soviet economic system, the interests of currentconsumption inevitably came to dominate over the interests of accumulationand investment. Second, the scheme left open the question of the possibility (or, more accurately, the impossibility) of constructingan efficient economic system while the imbalance on the Soviet market persisted and there was no real mechanism for establishing equilibriumbetween demand and supply. Practical experience has confirmed the proposition argued theoretically by a number of distinguished social thinkers of a liberal persuasion as long ago as the period of mass diversion with socialist utopias (the 1920s and 1930s), that these problems are crucial for all types of socialist economy and in principle cannot be solved by them.19
Illusions of the late Soviet period

The contradictions between the social and economic views of politicians and economists as a whole and the known limitationsof the ideas of the partyelite which had decided on the reform determinedthe characterand direction of the decisions taken in the first years of perestroika, which can justifiably be called its rosy period. Rosy because the life of the country was still hardly clouded by any sharpconflicts or opposition, and both in society and among its leaders a whole series of illusions reigned concerning the possibilities and ways of humanisingand rapidly increasing the efficiency of the existing economic system, of transformingsocialism by means of uncovering its inherent social and economic advantages. True, the illusions discussed below are generally predictablefor a society embarkingon deep, revolutionary changes when it is at the very beginning stage of these changes. And understandingthese illusions is exceedingly important, since they exert a very substantialinfluence on the political decisions taken over an appreciableperiod of time. Above all we should note here the idea of the existence of broad unity among the whole of society about the character and direction of the intended reforms. The illusion is created that there are no strong interest groups capable of displaying

394

VLADIMIRMAU

opposition to the planned reforms. The reforms themselves seem so ripe and natural that the reformersat times have the impressionnot only that no one can but even that no one would want to resist the proposed course. In the case of the USSR in the mid-1980s, this idea was fostered by one factor but also qualified by another one. On the one hand, there was the dogmatic conception, predominantin political circles, of the social reality of the Soviet system as one which containedno inherently The irreconcilablecontradictions.20 question of basic interestgroups and their opportunities for lobbying was never seriously analysed. This of course to a considerable extent underminedthe possibility of adequateevaluation of the prospects of implementing particularmeasures in economic and social policy. On the other hand, the initiatorsof perestroikacertainlydid not expect a cloudless destiny for their offspring. In their consciousness, however, the field of possible resistance and struggle was confined to the narrow sphere of the higher party leadership,where representativesof the old party establishmentcontinued to occupy strongpositions. As far as the broadstrataof the populationwere concerned,they saw a danger, at worst, of 'survival of conservative thinking', which could be overcome by declaratoryand educationalmeasures and calls to 'begin perestroika with themselves'. In fact the appeal to the mobilisation potential of the socialist system and to the in experience of industrialisation the 1930s was the clearest reflection of this idea of the existence of some integral value orientationin Soviet society. The postulateof the existence of a fundamental unity of views on the necessity and character of reforms was the source of another important illusion of the early perestroikatime-the illusion that it would be easy to carryout reforms,that it would be possible quickly to solve the most diverse problemsthathad built up in the country over a long period. This was also reflectedin the notion that it was possible to solve simultaneouslyproblems which were contradictoryin their very essence. Undoubtedly the classic example of this kind of decision is the well-known anti-alcoholcampaignbegun by Gorbachevtwo months after his accession to power, in May 1985. From the very startit was obvious that this policy was socially a blind alley and economically dangerous:an age-old problem was supposed to be solved in a matterof months, and it would inevitably mean large losses of revenue at the same time as a policy of major structuralreforms, making great demands on the state budget, was announced. Such illusions were also directly reflected in the initial conception of perestroika, which postulated simultaneouslyan investment drive to boost the machine-building complex, a steep increase in the share of accumulationin national income (unprecedented in the previous two decades) and rapid growth in the consumer sector to deliver a markedrise in the welfare of the people. The slogans 'acceleration'(in the original technocraticsense of the term) and perestroika were mutuallycontradictory, but during the first years of perestroika the contradictionwas ignored by politicians and many economists. Actually, the first open problems among the Soviet leadership flared up on this point. One of the dramaticculminatingmomentsof the polemic was the October 1987 plenum of the CC CPSU, which led to the split between Gorbachevand El'tsin and the latter's dismissal in November.2'

PERESTROIKA

395

One furtherexample of this kind of idea was the attemptto activateentrepreneurial motivation(includingthroughcooperativeand individuallabouractivity) while at the same time stepping up the fight against non-labourincomes in the traditionalSoviet understandingof the term, that is to say, incomes from primitive forms of entrepreneurialactivity. In a number of regions of the country with a conservative leadershipthis turned into increased persecution of small private tradersselling the productsof their own labour. This was the basis for the formationof the illusion of a strong (or even almost omnipotent)government,which could venture to pose and solve the most diverse tasks. The omnipotence of the government (leadership)was attributed its democratism,its readinessto name problemsopenly and to publicise to To a certain extent the idea of the omnipotence of the leadership was failings. based on its belief in its exclusive popularity.This was partly justified, particularly in comparison with the extreme unpopularityof preceding leaders. Yet confidence in one's popularity and extraordinaryoverestimation of its practical significance drive policy into a trapin which leaders are absolutely incapableof taking decisions which are unpopularbut of critical importanceboth for the country and for their own political survival. The practically inevitable result of such a situation is rapid loss of what recently seemed an inexhaustible fund of trust. Moreover, the top leadership of the country proves insensitive to this tendency and for some time continues to act as if it remainedextremelypopular.It is usually the last to know that its fund of trust is exhausted. Finally, when speaking about the illusions of the 'rosy period', we should draw attentionto the theoreticalfoundationsof the policy of perestroika.As alreadynoted, the conception of reforms which had evolved was based on the work of academic economists during the preceding period. It would even be correct to say that the leadershipof the countryquickly and fully accepted the conception of 'improvement of the economic mechanism' in its most radical and consistent version. Initially this inspiredenthusiasm-pro-marketeconomists had never previously found such understanding in the party leadership and the leadership had never demonstratedsuch readiness to implement the economists' proposals. Gorbachev's statementsin 1986the 88, and many normativedocumentsadoptedthen, incorporated maximumof what official economic theory, in the version that was most progressive for the Soviet system, could offer. However, it soon became clear that ideas which quite recently had seemed highly advancednot only did not allow the ambitioustasks of perestroikato be fulfilled but, on the contrary, frequently led only to the intensificationof social and economic For problems.22 economic ideas seen as highly advanced in relation to the socialist system of economic managementwere in fact built on the logic of that system and assumed no weakening of these foundations. Meanwhile, the most consistent implementationof these ideas in practiceled to the rejectionof a numberof fundamental and decisive elements making up the Soviet economic system (beginning with mechanisms of centralised control over the economy and political control over the behaviourof economic agents), which then inevitably led to a radical change in the logic of functioningof the economy. And here the prescriptionsworked out in the old system of coordinatesproved exceptionally contradictory. The limitationsof the doctrinalguidelines caused, and the illusions of a strong and

396

VLADIMIRMAU

popular governmentreinforced, a number of constraintson the consistent development of economic reforms, which quickly acquiredthe characterof incontrovertible but dogmas. There were peculiartaboos not only on practicalimplementation initially even on discussion of a series of fundamentalquestions concerning the conduct of sensible macroeconomicand social policy. We list the most importantof them. First, I have in mind the thesis of the necessity of ensuring growth in the welfare of the population in step with the implementationof the perestroika policy. This thesis proved a serious obstacle to taking vitally necessary politically understandable measures and in fact led to just the opposite result, causing a rapid rise in the social price which would have to be paid in the near future for the inconsistency of the actions of the previous period. The government,thinking itself popular, was fundamentally incapable of taking unpopularmeasures and thereby only increased the magnitudeof the approachingcrisis. The demand to carry out the reforms 'without reducingthe standardof living of the people' was by the end of the 1980s one of the most severe obstacles in the way not only of implementing measures but even of discussing the question how to stop the USSR sliding into crisis. (We consider this the in more detail in the second section of this article.)Furthermore, influence of this was so strong that it proved insuperableeven for economists not connected postulate with the 'most populargovernment' and in fact already in opposition to it.23 The majorityof concrete 'political taboos' were connectedprecisely with problems of maintaining the standard of living, as they were understood then by most politicians and economists. The USSR leadership was very sensitive about any proposals to carry out price reforms designed to balance supply and demand on the consumer market.Any question of abandoningstate price setting seemed even more unacceptable-even the freedom of prices in the cooperative and individual sectors The comments was perceived by many as an anomaly that needed to be corrected.24 of some economists on the inevitability of the appearanceof unemploymentas real were carried out were met with a similar attitude. structuraltransformations The necessity of privatisationalso remained something unacceptableto the top Soviet leadershippracticallythroughout second half of the 1980s. For quite a long the time the conviction continued to prevail that it was possible to increase economic efficiency by liberalising the regime of functioning of state enterprises without changing ownershiprelations. Only very graduallyand reluctantlywas the necessity for transformation this sphere recognised, and moreoveran intermediatestage had in to be passed throughhere-recognition of the possibility of 'de-etatisation'. Also, of course, to the last the initiators of perestroika and the majority of their economic consultantsclung to the immutabilityof the 'socialist choice' of the Soviet people. This thesis was preserved even when the concrete political decisions in the field of economic reforms had in fact already clearly gone beyond the limits of the socialist system of economic management.
The question of the sequencing of the reforms

The first years of perestroika made it clear enough that there were three components which were necessary for comprehensivereform of Soviet society. It was a question of making structuraland institutional changes, and also introducing more or less

PERESTROIKA

397

consistent political reforms. The question of the interrelationship and sequence of these reforms over a ratherlengthy period of time remainedopen, however. Furthermore, not only was it not the object of any special theoreticalanalysis and prognosis at the initial phase of perestroika,but the subsequentanswers to the question (of the sequence of reforms) were decided directly in the course of practical politics, to a great extent as operationalreactionsto the exacerbationof particularconcrete social, economic and political problems. When perestroika started, the Soviet leadership was already able to observe the 7 years of experience of evolutionary transformation the Chinese economy. of This experience was viewed rather critically in the USSR then and in practice could not be seen as a possible model for the USSR. For this there were both subjective and objective reasons. Among the latter we should include the fundamentally different levels of economic development of the USSR and China, and the USSR's exhaustion of the possibilities of extensive growth and accumulationat the expense of the agrarian sector-two major economic characteristics of the Chinese reform. As noted above, the idea at first was that the reforms should begin with structural reinforcedby cautious innovationsin the economic mechanism (that transformation, is, in the institutionalsphere). In fact it turnedout that structural changes had to be carriedout at the cost of some reductionin consumption,and in the conditions of the shortage economy this was bound to have a certain disincentive effect. However, the practical measures for 'improvementof the economic mechanism', which followed soon after the calls for structural perestroika and reached their peak in 1987-88, caused events to develop differently. The redistributionof economic management rights in favour of managers and workforces of state enterprises in practice nullified the possibility of executing a structuralshift in the direction of the machine-buildingcomplex and stimulatedthe growth of consumer at the expense of investment demands. In principle this sequence of events was rather typical of the reformed socialist economy. Usually a period of centralised investment expansion is accompaniedby some relaxation of economic policy, which in turn is accompanied as a rule by a certain upsurge of inflation. This is soon followed by a tightening of policy (attributable,it is true, rather to reasons of political order) with a corresponding restorationof the macroeconomicproportionstraditionallyexhibited by the socialist economic system. This was how events developed in the USSR in the 1950s-1970s, as they did in the majorityof the other East European(socialist) countries.25 In the Soviet Union of the second half of the 1980s, however, events followed a different course. To a great extent this was the result of conscious choice by the reformistleadership,and primarilyGorbachev.Encounteringopposition to the economic reforms,clearly recognisingthatthe balance of forces in the top partyleadership was unfavourablefor implementinghis policy, and recalling the sad political fate of Khrushchev,the GeneralSecretaryand his closest associates reachedthe decision that it was possible or even necessary to neutralise the influence of the conservative above majorityamong the party-stateelite by initiatingprocesses of democratisation,
all glasnost', openness.

In a word, by 1988 political reformbecame the dominantfeature among the tasks

398

VLADIMIR MAU

in of systemic transformation the Soviet Union. The characterof structuralchanges was now clearly of lesser importance.Improvementof the economic mechanism in fact came to be seen as an indispensableelement in the general course of democratisation. It was assumed that they would go hand in hand-all the more so since the changes in the economic mechanism at the first stage of perestroika were viewed of basically as democratisation the system of economic management,as a shift of the centre of gravity in transferring concrete economic decisions to the enterpriselevel, on the one hand, and as democratisationof managementwithin the productionunit (including election of management),on the other. However, the weakening of political control in Soviet society turned out to be identical to the weakening and subsequentloss of control in the economy. 'Economic affairs,political methods', Cherenko wrote in 1984,26and this formula,as the course of perestroika also confirmed, clearly and adequately reflected the essence of the Soviet economic system. When the political axis on which the economic organism relied was severely weakened, that is to say, when the centralisedparty system of appointmentsand supervisionwas relaxed but not replacedby marketstabilisersand constraints, economic processes quickly began to become uncontrollable. As democratisationadvanced, so the formation of political subjects of various colours and orientationsaccelerated,and sharp struggles developed among them. Gradually political struggle became the dominantphenomenon of social relations, being more valuable for its subjects than political stability. This was to be the most important characteristicof the next stage of transformation the Soviet system. of
Loss of control, or slide into crisis (1989-91)

By the beginning of 1989 clear signs had appearedthat the process of reforming Soviet society was entering a new phase. The general contours of this process, its essential trends,had become more distinct. Above all, it had clearly begun to acquire momentum.This does not mean, though, that the transformation the Soviet system of was irreversibleby that time, but it had gone quite a long way, and attemptsto return to the initial economic and political situation could no longer be implemented by relatively painless changes in the top leadership(as they had been, for example, on the removal of Khrushchevin 1964).
Political reform as the basis of transformation of the country. The 1st Congress of People's Deputies of the USSR

The key featureof the situationat the turnof 1988-89 was the emergence of political reform as the crux of the transformation process. As became clear later, this was a of crucial political choice, which would determine the development of the point countryfor years and indeed decades to come. An alternativevariantof reformof the socialist system was demonstrated China, which began with economic transformby ation and resolutely preservedthe traditionalsocialist status quo in the political and ideological spheres.The Soviet Union took a differentroute. History thus, as it were, set up a comparativeexperiment.The existence of these two alternativessoon turned into a kind of political competition. In future, China's experience was to be one of

PERESTROIKA

399

the arguments in the battle over Russian economic reform. We shall not give a comparativeanalysis of the Chinese and Soviet (Russian)routes from socialism here (all the more so since in China it is still officially seen as a means of 'improving socialism', as constructionof 'socialism with Chinese characteristics').We merely note not only that these questions requirea special study but also that in principle a serious analysis will only be possible when the economic reforms in China are supplementedby political reforms. We have already spoken in the first part of this article about the reasons why the Soviet leadershipand Gorbachevpersonally, having startedwith economic slogans, then made political reform the focus of their attention.Here it is appropriate add to that the reformersthemselves could not abandon this logic either. They were also drivento it by the developmentof the situationin the higher echelons of power, when they had to rely on the supportof public opinion in their struggle with the leaders of the conservative bloc. This was not the whole of the matter, however: by the beginningof 1989 broaderand broaderstrataof the populationwere being drawninto political life. Numerous meetings and demonstrationswith democraticslogans were taking place in the cities, with tens and then hundredsof thousands of participants gatheringin Moscow. When we speak of this period as the point at which the route was chosen, therefore, we are thinking not of the possibility of conscious choice for a concrete politician (and above all for Gorbachev)but the fundamentalpossibility of changing the course of events in the case, for example, of a change in political leadership.Also, let me emphasise, it was a question of the possibility of changing the reform model, not of an about-turnwith the aim of reversing the development of events. The model of post-communisttransformation that came to be implementedin the USSR had, from the very beginning, one interesting and extremely important peculiarity.Whereas in the economic sphere approachesto economic reforms were accompanied for quite a long time by attempts to create a 'special way' (a incentives with preservationof the absolute combination of private entrepreneurial dominance of state ownership), in the political sphere 'general human values'-the modem democratic system characteristicof the developed countries of the Westemergedpracticallystraightaway as the basic model. A numberof exotic peculiarities of the new institutionsof state power (such as elections of USSR people's deputies from social organisations)were regarded from the start as transitional,temporary phenomena. Preservationof the one-party system was also a question of time-the CPSU itself was falling apart,not to mention the rapid growth of alternativepolitical associations in the form of clubs. The elections for a new body of deputies which took place in March 1989 and the 1st (May-June) Congress of People's Deputies of the USSR effectively reinforced and gave form to the predominanceof political reform and political problems over economic ones. The proceedings of the Congress and its results reflected practically the whole complex of economic and political problems which had built up in late socialist society as a product of the attemptsto reform it. Above all, the formationand functioningof the institutionsof power broughtabout a clear shift towardsa strongerpopulist componentin the elaborationand implementation of economic policy. The top leadershipcould no longer take decisions which

400

VLADIMIRMAU TABLE 1
RELATIVE WEIGHT OF CHANGES IN EXPENDITURE ON SOCIAL AND CULTURAL MEASURES IN CHANGE IN TOTAL USSR BUDGET EXPENDITURE

1989 Change in USSR budget expenditure(billion rubles) Change in expenditureon social and culturalmeasures (billion rubles) Change in expenditureon social and culturalmeasures as proportionof change in total USSR budget expenditure(%) 23.1 - 2.0 - 8.7

1990 30.6 20.7 67.6

clearly ran counter to the mood of public opinion, which naturallywas soon bound to affect the characterand effectiveness of managementof the economy. In a stable democratic society control over the authorities by public opinion is exercised basically through the election process, and the current actions of government are influenced primarilyindirectly, which is reflected in the so-called political business cycle. In the 1989 model of Soviet society, however, with its unregulateddivision of powers and high level of political activity on the part of the population, closely following the machinationsin the corridorsof power, the governmentis a hostage to the popularityof its own current,day-to-day decisions, not to speak of declarations and decisions of a strategic character. the Furthermore, characterof populism itself began to change. The decisions of of 1986-88 on democratisation managementof the economy were populist in essence and destructive in their consequences, but the politicians who took them were confident that such measures would be economically effective and were vitally necessary and justified. Now, however, the situationwas different. The decisions of the Congress of People's Deputies, the mood of society, with its expectations of a rapid increase in welfare disappointed,determineda course of expansion of social programmes-and that in conditions where in 1988 the government had openly admittedthat the budget was in deficit and the leadershipwas coming to understand the danger of such a situation.27 In any case, in spring 1989 the Politburo discussed the question of the budget deficit and was inclined to take restrictivefinancialmeasures(Tables 1 and 2)28.After the 1st Congress of People's Deputies, however, such a course had to be forgotten. And the top leaders did so with all the more relief since they did not want to bear the responsibilityfor unpopulardecisions. Here we come to a second question which appearedclearly at the Congress of People's Deputies and was one of the dominantquestions of future economic policy. This was when the question of the social price of reformswas clearly formulated,and transferredfrom public economic debate to the official plane. Furthermore,the argument that economic reforms were inevitably painful was clearly presented now-earlier it had been at best a matter of incantations about the necessity of carrying out reforms so that everybody gained from them. From this point of view one of the key speeches at the congress was by N. P. Shmelev. This was a comprehensivespeech, containingin essence the foundationsof an economic conception of the developmentof the countryalong the road of reforms. He pointed out the necessity of drawingup a clear programmeof reforms, and above

PERESTROIKA

401

TABLE 2
ANDCULTURAL USSR BUDGET EXPENDITURE SOCIAL ON 1988-90 MEASURES,

1988 billion rubles Total expenditure of which on social and culturalmeasures of which on: educationand science social provision state social insurance health and physical culture 459.5 151.3 59.6 39.5 25.5 21.9 % 100.0 32.9 13.0 8.6 5.5 4.8

1989 billion rubles 482.6 149.3 54.5 40.2 25.2 24.6 % 100.0 30.9 11.3 8.3 5.2 5.1

1990 billion rubles 513.2 170.0 59.9 51.5 29.3 28.5 % 100.0 33.1 11.7 10.0 5.7 5.6

all quickly solving the problem of the budget deficit, liberalising the economy and thus forming a competitive environment for domestic producers, though he did not hide the fact that the measures proposed would not be simple. He spoke also of the inevitability of a rise in the country's external debt, combined with warnings about the need to use the gold and currency reserves and foreign credits for the purpose of carrying out reforms, not to maintain the status quo.29 Such proposals,however, were firmly rejectedby the political leadership(and above all by the head of the government, N. I. Ryzhkov). For their part, they mainly used arguments on the moral plane, which in effect concealed the absence of a responsible policy. The question of the price of reform reflected the mounting economic crisis in the country.The fall in productionhad not yet appearedclearly in the statistics, and the discussion was more of the necessity of reformthan of stabilisingthe situation.There was not yet talk of crisis, but in fact it was obvious to all that it was coming-as shortagesof goods increasedand the financialposition of the countryworsened. Not for nothing was it that at this time, and above all at the Congress, the first proposals were heard for anti-crisis measures. The new USSR governmentformed in the middle of 1989 basically incorporated the classical version of the late-socialist conception of reformism.It was a peculiar coalition of representatives of the leading economic lobbies (military-industrial, energy and agricultural) and economists presenting themselves as progressively thinking bureaucrats(V. S. Pavlov, S. A. Sitaryan,V. I. Shcherbakov)or reformist intellectuals (L. I. Abalkin). The economic part of the government could fully characterisethe economic policy of the cabinet. Ideologically it was unable to go beyond the limits of the construct of 'improving the economic mechanism' in its In 'plan-market'interpretation. practice its policy was bound to be one of cautious economic measures, justified by considerationsof gradualnessand continuity. In a calm political atmospherethis course would have been quite naturaland possibly even optimal. In a situation of growing systemic (that is to say, simultaneouspolitical, economic, social and ideological) crisis, however, it doomed the government to a policy of passively following events, 'reactingto problems', when the time had come for decisive steps to anticipateand forestall crises.

402

VLADIMIRMAU

Growth of conflicts and beginning of general crisis

Perhaps the most important specific feature which allows us to characterise the economic policy process of the final two years of the USSR is the growth of conflicts. They gripped broader and broader strata of the population, penetrating all spheres of social life. The formation of a general environmentof conflict was the dominant feature of the process of working out and implementing economic policy, the basic factor determiningthe economic position of the country.Essentially, the source which provoked the conflicts was the USSR Council of Ministers. Its actions in summer 1989, together with the logic of a systemic crisis which by that time had gathered definite momentum, also determinedthe general framework and character of the economic policy conflicts of the period we are examining. Absence of real experience of the functioning of democraticinstitutions,absence of a clear idea of the limits to the powers of the administrative organs, and preoccupationwith abstractdemocraticphraseology frequentlyled to decisions of a very exotic nature, which had severe economic consequences. In the preceding section of this article we examined a number of decisions of this kind, explaining them by the popular new leadership's belief in its omnipotence. Now the previous confidence in omnipotence was replaced by lack of confidence, unreadinessto take responsibilityfor implementingunpopularmeasures,the necessity for which became quite obvious at the turnof 1989-90. Moreover,the leadershipof the USSR attempted to hide its unreadiness to take such decisions by demonstratingits devotion to democraticprocedures. One of the most striking cases-and one of the most disastrous in its consequences-was the Council of Ministers' decision to 'consult the people' about the reformof prices. The absence of an effective incomes policy in the second half of the 1980s, while state price setting was preservedand prices of the majorityof goods did not change, had led to sharpdisequilibriumon the consumermarket.Either a general of upwardrevision of prices (a reformof prices) or abandonment price setting by the state (a reform of price setting) was necessary. Of course, the government was not ready for the latter, either ideologically or politically. But Ryzhkov publicly announced a revision of prices as a preparatory measure. The reaction was immediate in both the economic and the political sphere. There was a sharpjump in demand, and in a matter of days the shortage of goods went from widespreadto total. At the same time such a squall of criticism burstover the Council of Ministers that the revision of prices was put off for practically two years (although the economic consequences of the Premier's statementwould have seemed to demand diametricallyopposite action). Anothertypical example of the instabilityof governmentpolicy was the attemptto introducea 5% sales tax. Soon afterthe adoptionof this decision, underpressurefrom various lobbyists, there was a sharpreductionin the range of productssubject to the tax, so that it did little to help solve the budget problem. This list could be continued.The general conclusion from all we have said is that the Union government at the start of the 1990s was incapable of conducting an effective and consistent economic policy. The decisions which the economic situation

PERESTROIKA

403

demanded either were not taken at all or were quickly nullified in the course of implementation. There were many reasons why the government was in such a position. Beside obvious mistakes by its leadership,there was also the effect of the ratherundefined position of the Council of Ministersin the system of organisationand functioningof the institutionsof power-while escaping the tutelage of party organs to a considerable extent, ministers found themselves exceptionally dependent on a parliament gravitatingtoward populism. There was no clear delineation of the powers of the legislature and the executive. Nor can the objective logic of the development of events itself be overlooked: as the CPSU collapsed, as the top party leadership demonstratedits inability to adapt to the changes taking place in the country, there was a naturalweakeningof the whole hierarchyof executive authority,which steadily reduced the Union government's possibility of influencing the course of political events.30 Against this background it is not surprising that a chain of the most diverse conflicts soon formed, growing and multiplyingrapidly throughoutthe USSR during 1989-91. There was a polarisationof social forces, and it became more and more clear that different social groupings (which could by no means be reduced to the division into working class, kolkhozpeasantryand labour intelligentsiaof traditional Soviet official sociology) had far from identical ideas about the future political and of economic reconstruction the Soviet system. Moreover,the conflicts were becoming more and more politicised, and even those problems which initially appeared as non-political (national, religious) revealed their political characterin this period of perestroika. The major directions in which the rise in the 'general level of conflict' showed itself were the growthof the strikemovementand the weakeningof the territorial-political unity of the USSR. The beginning of the mass strike movement dates from summer 1989 and practically coincides with the conclusion of the 1st Congress of People's Deputies of the USSR. Begun by the minerswith a set of basically economic demands (which, it is true, were soon supplementedby political demands), strikes quickly spread to the most diverse sectors and spheres of production.The demands were just as varied-from higher pay and changes in working conditions at an individual enterpriseto changes in procurementprices for the produce of the entire agrariansector (this was demandedby kolkhoz and sovkhoz directorsthreateningto begin a strike in agriculture).And althoughthe scale of the strikes and the degree of coordinationof the participants(especially at the inter-sectorallevel) did not present a particular threatto the political authorities(with the single exception, perhaps,of the miners' strike in spring 1991), they quickly destabilised the general situation in the country. At the same time the territorialunity and integrity of the country were being weakened. Inter-nationalityconflicts, which had arisen in the first years of perestroika,were supplementedby the growthof separatistfeeling both in union republics and in individualautonomousunits. For this therewere several reasons,each of which would be sufficientto tear the federationapartas soon as the mechanismcompulsorily binding its subjects into a single and essentially unitary state disappeared.

404

VLADIMIRMAU

Above all, the very fact of the weakening of the Union centre, its inability to find a way to overcome the economic difficulties of the transformation process, prompted the Union republics to seek a way out of the crisis independently.The weakening of the Union centre and the strengtheningof the republics, strictly speaking, were mutually reinforcing processes. The problem, of course, was not confined to the federation subjects' desire to be states with full sovereign rights, still less to the personal political ambitionsof their leaders. The inconsistency and contradictionsof course had by that time become one of the major sources of the Gorbachev-Ryzhkov in economic policy. instability In general, though, a much more quintessentialfeature was the union republics' differentconceptionsof the prospectsfor economic (and their leaders') fundamentally and political reforms, the future social order which was to replace Soviet totalitarianism. This conflict appeared quite clearly at the 1st Congress of People's Deputies and only continued to intensify thereafter.The Baltic republics wanted to form modern market democracies of the Western type (even before they officially raised the question of leaving the USSR), and Russia, Ukraine and Armeniainclined to that too. The Central Asian leaders preferred to ensure the preservation of a neo-communistsystem with a strongernational component. Some republics did not such a situationdid yet have a sufficiently clearly defined position. Understandably, nothing to help either to strengthenthe Union state or to carry out any integrated reform policy. The conflict intensifiedsharplyafter elections to the republicSupremeSoviets were held in 1990. Conductedon the basis of a choice of candidates,they gave the subjects of the Union more or less legitimate institutions of power, both legislative and executive. The Supreme Soviets set about legislative work, and this gave a powerful impulse to the process of disintegrationand divergence of the economic legislation of the individualmembersof the federation.At the same time the Union republicstook steps to create their own budget system and to establish tight controls over payments to the Union budget. A fundamentalmoment here was when Russia took the road of separatismby adopting the Declarationon sovereignty in June 1990. The process of sovereignisationof the Union republics took the outwardform of a deep conflict over the redistributionof power in conditions in which its various holders coexisted. The Soviet constitutiondid not give a clear definitionof the powers of political institutions, since in reality power was concentratedin the hierarchyof party organs. With the abolition of this hierarchyand the weakening of the Union centre, a situationof institutionalindeterminacyarose. In practicepowers were being in redistributed favour of the Union republics.This process naturallytook place in the form of a bitter struggle,both institutional(between the organs of power at different levels) and personal. As a result of this struggle for power there was a rapid change in the relative weight of political and economic problems. Political factors and argumentsoccupied an absolutely dominantposition, and considerationsof economic advisability receded into the background.Economic processes became hostage to political decisions and economic policy was formed as a response to political opposition. All this was most vividly demonstrated the hostility between the organsof power in of Russia and the USSR. Thus, with a rapidlygrowing state budget deficit, the USSR

PERESTROIKA

405

governmentin autumn1990 gave state enterprisesa certainamountof freedom to set prices (within a range of 50-100% from the list price), which turned into an immediatereductionin tax payments, since one of the basic items of budget revenue then was turnovertax as a fixed sum in the price of a particular product.An increase in the price by the enterpriseled to a correspondingreduction in the turnovertax included in prices (since retail prices remained fixed). At the same time the tax war began: the leaders of Russia and the USSR, seeking to enlist the supportof enterpriseworkforces,in turntook decisions to reduce the rate of profits tax-of course, in the one case for those enterpriseswhich were willing to move to the jurisdictionof Russia, in the other, for those which remainedunder the Union. There were analogous examples in agriculture.In autumn 1990 the USSR Council of Ministers took a decision to raise procurementprices, which, in a situation of growing shortages of industrialgoods, only discouragedagricultural producersfrom their produce. The Russian government,wanting to outdo its political rival, selling introducedthe correspondingprices sooner than it had been proposed to do in the USSR. This of course made a significant'contribution' the deterioration the food to of situation. Throughout1990 and the beginning of 1991 there was also a kind of 'passing the buck' on the question of who would take the responsibilityfor the unpopulardecision to revise retail prices. The Union government,after Ryzhkov's unsuccessful attempt to solve the problemby 'democraticmeans', wanted a joint decision with the subjects of the federation,to which the latter resolutely refused to agree. (The situation was different in the Baltic.) A number of republics began to draw up their own economic programmesas alternativesto the conceptions and statementsof the Union government. The '500 days' programmeapprovedby the Russian Supreme Soviet was only one, although the most vivid, episode in the 'programmewar' which went on between the Union centre and the leadershipof a series of republicsthroughout1990-91. In some cases the 'programmewar' was primarilya form of political antagonism(as with the '500 days' programme)and did not go as far as any real measuresin the economic sphere. In other cases, however, the institutions of power in Union republics set about implementing economic decisions which broke with the practice of the Union governmentand the governmentsof other subjects of the federation.This was clear evidence that the differentrepublicsof the Union not only had differentobjectives for their eventual developmentbut also differentviews on the way to overcome the crisis in the economy. This was demonstratedespecially clearly in 1990-91 by the Baltic republics. Following the formation of the new organs of power in 1990, they set course to implementliberalreforms.Steps were takentowardsfree price setting and the process of privatisationwas initiated. Moreover, these governments were the least inclined towards populism. (For example, in summer 1991 the minimum monthly wage in Belorussia was set at a level of 265 rubles, while in Estonia, where prices were much higher, it was set at 250 rubles.) A policy of financialstabilisationwas clearly singled out as the highest economic priority in the Baltic. The Russian leadership's position was equivocal. On the one hand it strove to

406

VLADIMIRMAU

ensure rapid preparationof a new legislative basis. Thus, in summer 1991 RSFSR laws on privatisation,on propertyand on foreign investmentswere passed (although the speed with which they were draftedwas frequentlyreflected in the quality of the documents adopted). On the other hand, there was a strong mood of populism here too, largely explicable by the comfortableposition in which the Russian organs of power found themselves, since, with the overwhelming majority of the economy remainingunder Union authority,Russian politicians, although feeling their lack of power, could make up for this deficiency by the possibility of scoring points in public opinion through sharp (and often justified) criticism of the Union government. Populismclearly dominatedthe mood of the majorityof the republics'leaders.This was especially markedwhere the republicauthoritieswere not seen by the population as fully legitimate and thereforefelt that their position was unstable. (Belorussia or Turkmeniaare typical examples.) Thus by the beginning of the 1990s the Soviet Union was a tangled network of conflicts, accompaniedby a situationof rapidly growing political uncertainty.At the same time (and partly as a consequence of this political uncertainty)the countrywas clearly reaching the crisis zone. In 1990 the discussion in economic and political circles of how to implementreformsbecame a discussion of how to overcome crisis. In essence, the question was more and more frequentlyposed in the form, had the country entered a blind alley, to escape from which it must try to turn back, or was it facing a large-scale crisis which could only be overcome by going forward, by carryingout decisive and consistent reforms.
Attempt at conservative stabilisation

The growing manifestations of crisis most affected the position of the Union government,of course. It was primarilya hostage to the crisis. And it attemptedto take decisive steps to break the trend towards mounting crisis. At the turn of 1990-91 a regrouping of forces took place among the higher echelons of the Union authorities.The Council of Ministers was replaced by the Cabinet, directly subordinateto the Presidentof the USSR, headed by V. S. Pavlov. People known for their conservativeeconomic and political views (opposition to the incipient non-state sector in the economy, a hard line on democratic processes) strengthenedtheir position in the country's leadership.Moreover, these were representatives of a new generation of politicians, not associated with the illusions of renewal that markedthe first years of perestroika, but instead having strong connections in the regional bureaucraticnomenklaturaor the military-industrial complex. The political prioritieswere determinedfairly quickly. An attemptwas in fact made to halt or even reverse the political situationsomewhatby forcible methods (or by the threatof using force). It was not a matterof resurrecting traditionalsocialism, but of order' and carryingout a series of economic stabilisationmeasureson that 'restoring basis. Probably nobody had a clear programmeof action. There was only a clear desire to stop the collapse. And they thoughtthis could be done with a political course that can be described as 'conservative stabilisation'.31 On the one hand,the Union leadershiptried to halt the centrifugaltendencieswhich were clearly leading to the collapse of the USSR. This really was the heart of the

PERESTROIKA

407

political crisis. And at the beginning of 1991 the Union authoritiesemployed force in the Baltic in measures designed to demonstratetheir readiness to take tough and decisive action. Gorbachev's statementssounded a threateningtone which they had not had earlier. In essence this was an attempt to repeat the classical cycle of economic and political developmentof a socialist country. It was already late, however. The party hierarchy, if not finally destroyed, was at any rate completely discredited. Social movements (including strikes) were on the rise. The subjects of the federationhad legitimate organs of power.32 The universal rejection of the course of violence compelled Gorbachev to desist and from May 1991 the process of negotiationamong the leaders of republicsand the USSR on the basis for the formationof a new Union (the so-called 'Novo-Ogarevsky in process') began. At the same time, the non-participation this process by a number of subjects of the federationmeant de facto recognitionof their possibility of leaving the Union. On the other hand, the Cabinet of Ministers tried to demonstratefirmness in its economic policy. The course Pavlov adopted indicated strong influence by the military-industrial complex, which was inclined towards solution of economic and political problems by means of force, was more interested than other sectors in strengtheningstate ownership to counterbalancethe alternativeeconomy, and had a low degree of dependenceon foreign economic relations.In an interview33 setting out his programmethe premiernamed the prioritytasks of the governmentas strengthening the central authorities,developing heavy industry,its acceleratedmodernisation by the state itself, the conduct of 'small privatisation'on the basis of uniformgeneral state ownership, and preservation in the main of collective use of the land in agriculture.At the same time he accused a numberof private banks in Switzerland, Austria and Canadaof seeking to destabilise the political situation in the USSR, to depress the exchange rate of the ruble even further,and then buy up a significantpart of the country's productive assets at low prices. In official statements, arguments about the need to defend the country against the intrigues of internationalcapital The presidentissued a decree authorisingdirectinterventionby MVD and reappeared. KGB organs in the economic operationsof enterprises(includingjoint ventures) on the territoryof the USSR. All this severely limited foreign partners'interestnot only in investment but even in trade with the Soviet Union. The essence of the new economic policy course was to support and strengthen traditionalstate economic structures,and concentratefinancialand materialresources in the hands of the state, in order to overcome the crisis using the traditional in instrumentsof the Soviet system and possibly ensure a technologicalbreakthrough some leading sectors of the economy. Alternative economic structuresare left a secondary role here, and their active inclusion in the economic process is at best postponed to the future. An extremely importantfactor was the decision that was finally taken to reform retail prices. Above all, this was politically and psychologically significant:it was the first time for several decades that it was decided to change practically all prices, which delivered an irreparable blow to the traditionalSoviet mentalityaccustomedto price stability.

408

VLADIMIRMAU

Finally, the actions of the Cabinetof Ministersclearly displayed a tendency which was to become decisive later-the concentrationof power in the hands of executive at the expense of representativeinstitutions, with further personalisation of that power. In June 1991 Pavlov demanded that the Supreme Soviet should in effect transferto him extraordinary powers to conduct the stabilisationpolicy. all the Union leadership'sattemptsto switch to a course of conservative However, stabilisationbrought no perceptibleresult. The centrifugalprocesses had acquireda momentum,and conservativemeasureswere associated in public opinion with return to pre-perestroikatimes, which then was extremely unpopular. The legislators were opposed to transferringspecial powers to the Cabinet of Ministers. Furthermore, peculiar dichotomy appearedin the Union institutions of a while the government was striving to retard the processes of systemic power: transformation,the USSR Supreme Soviet was working on a whole series of legislative acts designed to create the legal basis for the formationand functioningof marketstructures(draftlaws on privatisation,on entrepreneurship, new Principles of Civil Legislation, etc.). And it was not ready either to give up part of its powers or to revise its legislative programme. Nor did the attemptto stabilise the situationon the consumermarketby a revision of prices have the desired effect. The problem of the 'monetaryoverhang' was only mitigated for a short while. The reverse side of the increase in prices was an accelerationin the flow of money into the economy. There was a wave of compensation for price rises-both at Union and republic level. In addition, the increase in prices was the point of legalisation of the process of consumption of productive assets by enterprises,which had already startedby that time. The Cabinet permitted them to use part of their development funds to pay compensationfor the price increases, and a numberof enterprisesin Minsk won the right to use part of their depreciationallowances for this purpose. This was the true signal that the economic crisis was moving into the stage of collapse of the economic system. Although the decision to increase prices itself was uniform and centralised (the republicsthemselves wantedthis, as they wantedto avoid responsibilityfor unpopular decisions), it was also a moment of substantialexpansion of the powers of republics (and in a number of cases localities too) in the implementationof price policy, especially for consumer goods. The failure of attemptsat conservative stabilisationwithin the existing legal space measures,culminatpromptedpart of the USSR leadershipto resort to extraordinary ing in the attemptedcoup d'etat of 19-21 August 1991. It was characteristicof the coup that not only were its leaders indecisive but also, and this must be especially emphasisedhere, that socialist terminologywas almost completely absent from their statementsand documents.The accent was on achieving the stabilisationobjectives, even though the economic programmeitself, as it was officially announced on 19 August, was as populist as it could be and impossible to implement in practice. The collapse of the August coup led to the effective abolition of the Union organs of power and consequently of the USSR as an integral state. The InterstateEconomic Committee (MEK) which took the place of the government had practically no official powers. The only thing it could deal with was the

PERESTROIKA

409

division of the USSR inheritance among its subjects. An attempt was made within the MEK framework to draw up and sign an economic agreement between the republics. But the abundance of mutual claims by one republic on another, on the one hand, and the divergence of their economic policy aims, on the other, made such an agreement practically impossible to achieve. Beside this, the draft agreement worked out under the leadership of the deputy chairman of MEK, G. A. Yavlinksy, was highly abstract (indeed, it could not be otherwise) and assumed that it would be followed by conclusion of several dozen agreements on concrete matters. This was in principle unrealistic, since it required the ten extremely different participants in the negotiations to agree their positions in a very short period. For this, however, there were neither political opportunities nor time left. The country was approaching disaster. The consumer market was completely destroyed. The cities began to experience difficulties with food supplies. Energy supply problems were increasing, threatening a rapid collapse of production and lack of heating for the population in the approaching winter. The situation demanded extreme measures. The Russian Federation and its president personally took responsibility for them in November 1991. The country (or, more accurately, the states that had been united in the USSR) entered a new phase in their economic and political development. Institute for the Economy in Transition, Moscow The author wishes to express his gratitude to the MacArthurFoundation for the support provided for this study. I See, for example,A. Nove, Glasnostin Action (Boston,MA, 1989);M. I. Goldman,What Failed: WentWrong withPerestroika (New YorkandLondon,1991);P. J. Boettke,WhyPerestroika the Politics and Economicsof Socialist Transformation (Londonand New York, 1993). 2 L. I. Abalkin,Neispol'zovannyi shans: poltora goda v Pravitel'stve(Moscow, Politizdat, 1991);L. I. Abalkin,K tseli cherezkrizis:spustyagod (Moscow,Luch, 1992). 3 'To in show commonsense evaluation the past is to distinguish of what was inevitableas a result of naturaldevelopment(what happenedcould not not have happened) from what occurred despiteobjectiveconditions,as a resultof incompetence, inabilityto controlevents, as a resultof mistakesandmiscalculations', writesM. F. Nenashev,a memberof the last Councilof Ministers of the USSR,headedby N. I. Ryzhkov,in a bookof self-justifying of dialogueswith a number members of thatgovernment. PosledneePravitel'stvo SSSR(Moscow,Krom,1993), p.6. 4 And it was formulated in a quite specific context. Assessing some positive examples of of the definedthem as 'the initial improvement the economicmechanism, futureGeneralSecretary whichwe mustdevelopin breadth depthin the future'.M. S. Gorbachev, and stageof theperestroika rechi Izhbrannye i stat'i, Vol. 2 (Moscow,Politizdat,1987), p. 38. 5 M. S. Gorbachev,'Zhivoe tvorchestvonaroda'.With time it becamepopularamong Gorbachev'sclosest colleaguesto emphasisethe allegedlysecondary natureof his ideas,thatthey were derivedfromAndropov, more who, in thesecolleagues'opinion,couldhaveimplemented perestroika of the cautiously, by stayingwithinthe framework socialism.In this connection, followingstatement Ryzhkovdeservesattention: I considerthat the sources of perestroikago back to the beginningof 1983, when Andropov and chargedus-a groupof responsible people at the CC CPSU, includingGorbachev myselfwith preparing principles an economicreform.The starting the of pointof our workthenwas the criticalevaluationof socialismwhich had been expressedby Andropov. I also thinkwe can be quiteconfident assumingthatentirelydifferentmethodsof economic in and social transformation would have been adoptedin the countryunderAndropov'sleadership. Would they have been close to what is now being done in China?This questioncan also be answered positively. PosledneePravitel'stvo SSSR,pp. 23-24.

410
6

VLADIMIR MAU

See, for example, A. G. Aganbegyan, 'Na novom etape ekonomicheskogo stroitel'stva', EKO, 1985, 8; A. G. Aganbegyan, 'General'nyi kurs ekonomicheskoi politiki', EKO, 1985, 11. 7 Gorbachev, Izbrannye rechi..., Vol. 2, p. 147. 8 One of the first works to be published on this theme was the article by T. I Zaslavskaya, 'Chelovecheskii faktor razvitiya ekonomiki i sotsial'naya spravedlivost'', Kommunist, 1986, 13. Publication in Kommunist gave it a kind of semi-official character. 9 There were exceptions. A very characteristic example of the discussion of problems of macroeconomic policy and the nature of structural transformations in the Soviet economy was the 1988 debate in the pages of Kommunist between E. T. Gaidar and six ministers of the Union government on the question of whether it would be wise to increase the country's foreign debt considerably by attracting large foreign credits to finance construction of a new West Siberian oil and gas complex. See 'Zrya deneg ne dayut', Kommunist, 1988, 2, p. 15. 10 In general the term 'integral socialism' brought confusion. It was introduced into circulation in one of the official party documents, evidently without clear understanding of the context in which Lenin had used it. By 'integral socialism' Lenin understood a combination of the German militaryeconomic machine of the time with Soviet power. V. I. Lenin, Polnoe sobranie sochinenii, Vol. 36, p. 300. 1 The sharpest and most interesting discussions on this topic in Soviet economic literature took place at the beginning of the 1960s, preceding the 1965 economic reform, which was one of the most comprehensive attempts to reorganise the economic system on the basis of market incentives. For more detail on this see V. A. Mau, V poiskakh planomernosti: iz istorii razvitiya sovetskoi ekonomicheskoi mysli kontsa 50-kh nachala 60-kh godov (Moscow, Nauka, 1990). 12 See Gorbachev, Izbrannye rechi..., Vol. 2, pp. 87, 257. 13 See, for example, Politicheskaya ekonomiya, Vol. 2, edited by A. M. Rumyantsev et al. (Moscow, Politizdat, 1977). The corresponding principles were first formulated as long ago as the 1940s, in 'Nekotorye voprosy prepodavaniya politicheskoi ekonomii', Pod znamenem marksizma, 1943, 7-8, and were included in all standard textbooks and books on the political economy of socialism, beginning from the first textbook, Politicheskaya ekonomiya (Moscow, Gospolitizdat, 1954). Although in heavily revised form, they were also reflected in the last Soviet textbook on political economy, prepared under the direction of V. A. Medvedev and L. I. Abalkin, Politicheskaya ekonomiya (Moscow, Politizdat, 1989). 14 Life has taught us that deviations from socialist principles of distribution and economic management can give rise and are giving rise to such serious social phenomena as labour and social passivity, parasitism, moral nihilism, concealed forms of redistribution of income and benefits. In general, non-labour incomes are also connected ... with such deviations'. Gorbachev, Izbrannye rechi..., Vol. 2, pp. 96-97. 15 The following are only a few of the most important works on this subject: B. V. Rakitsky, Formy khozyaistvennogo rukovodstva predpriyatiyami (Moscow, Nauka, 1968) L. I. Abalkin, Khozyaistvennyi mekhanizm razvitogo sotsialisticheskogo obshchestva (Moscow, Mysl', 1973); L. I. Abalkin, Dialektika sotsialisticheskoi ekonomiki (Moscow, Mysl', 1985); L. I. Abalkin, Problemy sovershenstvovaniya khozyaistvennogo mekhanizma v usloviyakh razvitogo sotsializma (Moscow, Nauka, 1978); P. G. Bunich, Khozyaistvennyi mekhanizm razvitogo sotsializma: sushchnost' struktura, problemy i perspektivy (Moscow, Nauka, 1977); P. G. Bunich, Khozyaistvennyi mekhanizm upravleniya sotsialisticheskoi ekonomikoi (Moscow, 1984); A. G. Aganbegyan, Upravlenie sotsialisticheskimi predpriyatiyami (Moscow, Ekonomika, 1979); N. Ya. Petrakov, Khozyaistvennaya reforma: plan i ekonomicheskaya samostoyatel'nost' (Moscow, Mysl, 1971); N. Ya. Petrakov, Khozyaistvennyi mekhanizm v sisteme optimal'nogo funktsionirovaniya sotsialisticheskoi ekonomiki (Moscow, 1985). 1 16 Rakitsky, Formy... 17 Gorbachev, Izbrannye rechi..., Vol. 2, p. 81. 8 Petrakov, Khozyaistvennyi mekhanizm...; S. S. Shatalin, Optimizatsiya funktsionirovaniya sotsialisticheskoi ekonomiki (Moscow, 1980). 19 L. von Mises, Sotsializm: ekonomicheskii i sotsiologicheskii analiz (Moscow, Catallaxy, 1994), pp. 131-135; B. D. Brutskus, 'Problemy narodnogo khozyaistva pri sotsialisticheskom stroe', Ekonomist, 1922, 3, pp. 65-66. This completely obvious failing of the socialist (collectivist) system showed itself literally in the first days after the October revolution, when the Bolsheviks tried to put their ideas of organising production on the basis of 'workers' control' into practice. Even Bolshevik economists themselves, not to mention the socialists, began to point to the domination of consumer over producer and current over long-term interests. See, for example, I. Stepanov, Ot rabochego kontrolya k rabochemu upravleniyu v promyshlennosti i zemledelii (Moscow, 1918), pp. 6-8; V. Bazarov, 'Kommunizm ili gosudarstvenno-uporyadochennyi kapitalizm?', Mysl', 1919, 2, p. 59.

PERESTROIKA

411

20 These theses resounded through party congress documents and were expounded in the standard textbooks on the 'political economy of socialism'. See, for example, Politicheskaya ekonomiya, Vol. 2, ed. Rumyantsev et al., pp. 80-87. 21 See the documents of the October (1987) plenum of the CC CPSU, Izvestiya TsK KPSS, 1988, 2, pp. 209-288. 22 One example is sufficient here. The Law on the state enterprise, adopted in June 1987, which gave exceptionally broad rights to the directors and workforces of state enterprises, in practice quickly led to loss of ability to control the economy and disequilibrium among the basic macroeconomic proportions. Autonomy for state enterprises without a competitive environment and real budget constraints did not lead to increased operating efficiency, not to speak of macroeconomic efficiency. Not for nothing does Gaidar, using a well known historical analogy, call this document 'the law on the emancipation of directors'. 23 We are running ahead somewhat here, thinking of the position of G. A. Yavlinksy, reflected in his polemic over the '500 days' programme and especially in the motives for his resignation in autumn 1990. 24 As an example here they usually cited the GDR, where small private producers worked with prices set by the state. 25 For more details see E. T. Gaidar, Ekonomicheskie reformy i ierarkhicheskie struktury (Moscow, Nauka, 1990), pp. 112-119. 26 K. V. Chernenko, 'Na uroven' trebovanii razvitogo sotsializma', Kommunist, 1984, 18, pp. 3-21. 27 More precisely, the situation unfolded as follows: having recognised the danger of destabilisation of the state budget after three years of perestroika, the Soviet leadership decided to take steps to limit the deficit, choosing the standard way of cutting expenditure on social and cultural measures-this did not affect the interests of any influential pressure groups. As a result the 1989 budget provided for a fall of 2 percentage points in the share of these items, with a cut not only in relative but also in absolute figures. In 1990 the situation naturally changed; social expenditure increased, and by enough as it were to pay off the 1989 debt (see Tables 1 and 2). Equally naturally, this increase was not offset by any other budget cuts. 28 Special memorandum dealing with these issues was submitted to Politburo in autumn 1988 and discussed at a special meeting of Politburo in December 1988. 0. R. Latsis and Y. T. Gaidar were the authors of this paper. 29 Stenogrammy Pervogo s"ezda narodnykh deputatov SSR, Vol. 3 (Moscow, 1989), pp. 48-57. 30 'Without the party the multinational Soviet state could not exist, for it was deprived of its basic fastening mechanism', Ryzhkov now observed. Poslednee Pravitel'stvo SSSR, p. 31. 31 Actually it was an attempt to make the Russian reforms like the Chinese-to freeze political reforms and take cautious steps to implement elements of market relations in the Soviet economy. 32 At the same time an attempt was made to exert economic pressure on the Baltic states, using their dependence on external energy supplies as a lever. However, nothing came of this either, the reason for which was the logic of functioning of the economy in crisis conditions and the absence of a stable currency. Insofar as rapid barterisationof economic relations was occurring (in other words, neither rubles nor orders were effective), no instructions from the centre could stop producers (or holders) of various kinds of goods exchanging them among themselves, and on a massive scale. 33 Trud, 12 February 1991.