How Important were Economic Weaknesses to the Fall of the Soviet Union? (Edexcel A Level History): Revision Note
Exam code: 9HI0
Summary
This note will examine how far economic weaknesses contributed to the fall of the Soviet Union
Although the USSR achieved rapid industrial growth under Stalin and strong post-war expansion, long-term structural problems emerged by the late 1950s
Central planning resulted in
Waste
Poor incentives
A failure to modernise
Gorbachev’s reforms aimed to revive the economy through 'perestroika'
However, partial market reforms disrupted the command system and worsened shortages and instability
The collapse of central planning in 1990–91 caused
Severe economic decline
The bankruptcy of the Soviet government
Historians debate whether the economy was doomed by long-term structural flaws or whether Gorbachev’s reforms accelerated a crisis that might otherwise have been contained
Argument 1: Long-term economic weakness
Many historians argue that the long-term economic issues of the Soviet Union were responsible for the collapse of the Union
The Soviet economy had many early successes
The Five-Year Plan resulted in industrialisation
The strong economy during the Second World War allowed for the Soviet victory over the Nazis
By the end of the Second World War, the Soviet economy was the fastest-growing economy in the world
In the mid-1950s, the economy grew at an annual rate of 7.1 %
Economists believed the Soviet economy would catch up to or overtake Western economies
The Soviet economy started to decline in the late 1950s
The arms race caused the Soviets to spend a lot of money on highly sophisticated weapons
At the expense of other industries
The Soviet economy also declined due to its flaws, including:
Lack of incentives for its workers
Due to the egalitarian nature of the Soviet economy, there was not much wealth between the poor and the rich
A large amount of waste in industry
A large amount of goods were often wasted due to Gosplan
For example, in the 1980s, 400,000 tractors were produced every year; approximately 20% of them were never used
Failure to modernise the economy
The lack of sophisticated machinery resulted in more labour on farms
Transportation systems were never modernised
Lack of modern storage facilities for food increased wastage
The arms race
Soviet spending on weaponry dramatically increased from 12 % to 17% between 1965 and 1985
This spending was greater than American defence spending
Centralisation
The economy, being controlled by the government, created issues
For example, as farmers were instructed when to grow crops, instead of using their own expertise, this often resulted in production problems with crops
Overall, these external pressures are seen by many historians as an important factor in the collapse of the USSR
They placed severe strain on an economy already struggling to adapt
Key historian
"In its final years, the Soviet economy faced significant problems, including systematic difficulties arising from problems internal to the socialist economy, and which could be remedied by actions taken by the leadership itself. Most of the latter arose from the pattern of Stalinist super-industrialisation which created a vast top-heavy bureaucracy managing the country's economic life. At a certain stage, the enormous costs and wastage involved in maintaining the managing mechanism, the heart of the command economy, condemned Soviet-type economies to relative stagnation. In the absence of the invincible hand of capitalist market forces, and the increasingly palsied condition of the visible hand of command planning, such economies had no self-sustaining mechanism to imbue them with dynamism. These problems were not new, and the issue of economic reform had been at or near the top of the agenda at least since the death of Stalin." - Richard Sakwa, Soviet Politics in Perspective, (1998)
Key historian
"The Soviet administrative-command economy continued to have positive economic growth until 1989. The negative growth thereafter is indicative of an economic system in collapse. Although the USSR began the post-war era with high rates of growth (which were matched by much of Europe and exceeded by the economic miracles in Germany and Japan), its growth industrialized economies turned down in response to energy crises in the mid-1970s and early 1980s, they bounced back so that no long-term declining trend was evident.
The fatal decision in favour of radical economic reform was not forced to outright collapse. The party elite were reasonably satisfied, and the Soviet population was not in open opposition. The administrative command system, on the eve of its radical change, was inefficient but stable. Gosplan's projections called for an annual growth rate of some 3 percent through the year 200. Declining Soviet growth rate, coupled with the acceleration of growth in China, Southeast Asia, and the marked recovery of the U.S. economy, were troubling but do not fully explain the fateful steps that eventually spelled the demise of the system." - Paul R. Gregory, The Political Economy of Stalinism, (2004)
Examiner Tips and Tricks
In the interpretations question, remember that historians are not “right” or “wrong”, they simply offer different perspectives based on what they choose to emphasise.
Some historians highlight long-term structural weaknesses, such as stagnation, poor incentives and an over-centralised bureaucracy.
Others focus on the idea that the economy was stable but inefficient, and that Gorbachev’s reforms created the instability that led to the collapse of the Soviet Union.
Showing why historians disagree (because they prioritise different evidence) helps you avoid treating interpretations as factual statements and demonstrates strong evaluative skill.
Argument 2: Gorbachev caused economic weakness
Many historians argue that Gorbachev’s economic reforms significantly weakened the Soviet economy and contributed to the collapse of the USSR
Gorbachev's economic and political reforms are known as 'perestroika'
Historian Richard Sakwa argues that there were three stages to 'perestroika':
Rationalisation, 1985-86
Economic reforms led by the Communist Party to stimulate economic modernisation
Reform, 1987- March 1990
Economic reforms introduced markets into the economy, along with political reforms to allow for economic change
Transformation, March 1990- August 1991
Gorbachev abandoned fundamental features of the Communist system
Rationalisation, 1985-86
Alcohol
Gorbachev reduced the production of alcohol in May 1985
Production in state-run factories was reduced by 50%
A new task force was created to stop the illegal production of alcohol in the Soviet Union
These policies failed as
People still drank alcohol
Every year, there were still 4.5 million registered alcoholics
Soviet citizens began to drink samogon, illegally made alcohol
The government made less money from the sales of alcohol
Overall, the government lost 67 billion roubles, equalling 9% of GDP
This policy was abandoned in 1988
Acceleration
Acceleration was also known as uskorenie
Aimed to end economic stagnation
Was the main part of Gorbachev's Twelfth Five-Year Plan
Included a huge investment to modernise the Soviet economy
Acceleration failed due to
The decline in the global price of oil
The price of oil dropped from $70 a barrel in 1981 to $20 in 1985
Soviet oil revenues dropped by more than two-thirds
Gorbachev's increase in borrowing
Due to the decrease in revenue, Gorbachev borrowed money for acceleration
Government debt rose from $11.1 billion in 1981 to $27.2 billion in 1988
Gorbachev's poor investment in energy production
Gorbachev was advised to invest in high-tech machinery
Resulting again in a reduction of government income
Reform, 1987-March 1990
Partial market reform
To help save the central planning system, Gorbachev introduced some market reform, which included:
The Law on Individual Economic Activity, November 1986
This allowed families and individuals to make money from small-scale work
Such as private tutoring
Law on State Enterprise, 1987
Devolved power from the central government to factory management
Allowing them to set prices for production
This law failed as little power was actually given, and the government had to pay more for goods, which increased their debt
Law on co-operatives, 1988
Legalised the creation of large-scale private companies
By 1990, 200,000 co-operatives were created
Co-operative turnover in the first year increased from 29.2 million to 1.04 billion roubles
Incomes were higher than those in state enterprises
In this period, Gorbachev restricted the power of Gosplan
Resulting in its abolition in 1990
Problems with the free market
Although Gorbachev hoped the combination of a partial free market and central planning would revive the economy, it did not
The new market created problems as free-market products were unpopular
Free-market products reflected the prices of goods and services
Making them unpopular as they were more expensive than state-subsidised goods
The government imposed low prices on co-operative goods, causing economic problems
'Price capping' made production uneconomic, and this became problematic for co-operatives as they lost money
Economic and political problems
Partial market reform caused many political and economic problems, as it
Undermined the central planning system
Failed to create an effective system
Effected the transportation and storage of goods
The amount of goods increased without an effective system to store and transport them
Leading to food shortages despite a high level of production
Gorbachev's Twelfth Five-Year Plan failed
The GDP between 1986 and 1990 had shrunk by 4%
The aim for it to increase by 20%
This was the worst economic performance in the history of the Soviet Union
Gorbachev cut government subsidies in 1990
Allowing the price of basic products to rise to an alarming level
For example, a kilo of beef in January 1990 was 2 roubles, by April it was 7 roubles
Resulting in political issues as
Strikes increased
Gorbachev's approval rating dropped by 31 %
Transformation, March 1990- August 1991
In 1990, Gorbachev abolished the centrally planned system and adopted a full market
The 500 Day Programme
The '500 Day Programme' was created to help with the transition from a centrally planned system to a full market economy
Stanislav Shatalin and Grigorri Iavlinskii were responsible for this transition
They proposed full privatisation and complete marketisation in less than two years
Despite Gorbachev's initial support, he effectively rejected the programme due to pressure from hard-line communists in the Party
He stated that this transition should be slower
This prevented an overall plan from being adopted by the Party
The collapse of the economy
To revitalise the economy, the Supreme Soviet allowed citizens in 1991 to
Privately own land, factories and property
Trade stocks and shares
However, the economy declined
Oil production fell by 9%
Tractor and steel production fell by 12%
By the summer of 1991, the Soviet government was effectively bankrupt
Therefore, Yeltsin's programme of full marketisation in October 1991 was difficult to implement
Overall, Gorbachev’s attempts to reform and restructure the Soviet system are seen as a major cause of economic decline
As it caused instability in the USSR, which it could not survive
Examiner Tips and Tricks
In the interpretations question, examiners are looking for precise, well-chosen evidence that directly supports or challenges what the historian argues.
Rather than retelling the whole period, use targeted contextual knowledge, such as rising defence spending in the 1980s, falling oil revenues, or the contraction of GDP during perestroika.
This demonstrates that you are applying your knowledge analytically to test the interpretation, rather than simply describing events in chronological order.
Key historian
"Reform of the Soviet economy in the mid-to-late 1980s faced formidable obstacles. First, ideologically, for many Soviet communist officials and citizens, free market thinking and socialism seemed completely incompatible. Ordinary citizens also saw private enterprise and trading for profit as 'black market' activity. The masses were accustomed to, and valued, low-priced necessities and job security, but improved economic efficiency required a break with such practices.
A second obstacle was the determination of many officials in the party-state machine to retain their function of allocating resources, which was a vital source of their power and privilege. Consequently, bureaucrats could and did obstruct change.
A third obstacle was that millions of Soviet citizens had become accustomed to the old system and knew how to operate within it. Management was used to having their customers designated by central planning and had never had to advertise or promote their products.
All this helps to explain the failure of economic perestroika. However, the government also made serious economic policy errors, which made a difficult task altogether impossible. Such errors included the Twelfth Five-Year Plan, the failure to tackle the budget deficit that stood at nearly 100 billion roubles in 1989, and the reluctance to raise prices. The stage was set for disintegration." - Alec Nove, An Economic History of the USSR, 1917 - 1991, (1992)
Key historian
"Gorbachev gambled everything on the reform of the Soviet system. He hoped that he could somehow introduce a socialist-style market economy without letting the market dominate, permit greater freedom to the nationalities without conceding independence, and delegate power in a centralised system without leading to disintegration. In 1990, it grew increasingly unlikely that he could succeed, as a threefold crisis developed within the Soviet Union - ideological, economic and nationalist.
The decision to repeal Article 6 of the constitution and create the new post of President of the Soviet Union removed the directing role and political monopoly of the Soviet Communist Party. This change produced a profound ideological crisis regarding the purpose of communism but offered nothing to replace it. At the same time, the Soviet economy fell into actual decline, as gross national product contracted by between 2.4 per cent and 5 per cent. Finally, the nationalities' pursuit of independence or separation gathered pace in 1990. The areas most affected included the Baltic states, the Russian Republic and the Ukraine. Gorbachev tried to hold the USSR together but, in practice, disintegration was setting in." - P.M.H. Bell, The World Since 1945: An International History, (2001)
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