The failures of economic reform

The failure of economic reform 1985-1991

• Rationalisation 1985-1986
  • Gorbachev tried to improve the way in which the command economy worked
  • continued Andropov's anti-alcohol campaign, cutting state production by 50%
  • introduced uskoernie or "acceleration" to invest in the designing of a modern economy
    • anti-alcohol failed as citizens just bought it from black markets or brewed their own
    • anti-alcohol meant that the government lost money on vodka sales --> revenues dropped by 9% of GDP so in 1988 it was abandoned
    • acceleration failed because it was funded on borrowed money from the West so government debt rose & he invested the money poorly after ignoring the advice of experts
• Reform 1987-1990
  • Gorbachev began to experiment with market reforms
  • Law on Individual Economic Activity (Nov 1986) which made it legal to make money on small scale jobs like tutoring
  • Law on State Enterprises (June 1987) factory managers set prices for their goods
  • Law on Co-operatives (May 1988) legal to set up large co-operatives which functioned like private companies
    • created growing economic chaos
    • undermined command economy but failed to create an effective alternative
    • so there was no way to distribute goods and shortages became severe 
    • 1986-1990 the GDP shrank by 4%
    • by 1990 the economic problems effected politics as prices rose and senior officials grew rich
    • strikes increased and there was a decline in support for the Party
• Transformation 1990-1991
  • to minimise the problems expected with going to a full market economy, Gorbachev and Yeltsin got two economists to draw up the "500 Day Programme" that proposed widespread privatisation and complete marketisation in less than 2 years
    • Gorbachev initially supported this ^^ but under pressure from hardliners he back down and switched to wanting it to happen slower
  • Jan 1991 --> Supreme Soviet introduced private property so Soviet people could own factories and land
  • April 1991 --> Soviet citizens can trade stocks and shares
    • economy continued to decline as oil production fell by 9% while steel and tractor production fell by 12%
    • summer 1991 --> Soviet and Republic governments were effectively bankrupt
    • Yeltsin announced a programme of full marketisation in Oct 1991 but it was difficult to implement

1. Gorbachev's reforms created chaos, which caused political chaos and the collapse of the USSR
2. The economy was bound to disintegrate because of its long-term problems --> the reforms just sped it up
3. His reforms could have been successful if he hadn't tried political and economic at the same time