Capital & Class

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The USSR: unrelenting economic pressure for reform

George Blazyca
Capital & Class 1989 13: 29
DOI: 10.1177/030981688903800103
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CY)
N
George Blazyca
The USSR:
unrelenting economic
pressure for reform

Ca

It is now almost universally agreed that

central planning is no longer working . The
advantages it may once have conferred on
the Soviet Union and some of the East
European economies have largely disappeared . Throughout the region economic
growth has become increasingly difficult to
sustain by traditional means . One unpleasant consequence of this is that the
domestic competition for resources has
become much sharper ; another is that the
technology gap with the West grows ever
wider . Moreover, in the USSR, nor even the
possession of superpower status has been
enough to prevent a mounting wave of social
demoralisation . This, plus economic decay,
point to a fundamental disorder that calls for
radical and dramatic treatment .
When Mikhail Gorbachev came to power
in March 1985 he was faced with two
immense and interrelated tasks : how to
reinvigorate the economy and how to give
the people a sense of direction for the future .
A considerable amount of probably irrevers-

29

Capital & Class

30

ible political liberalization was quickly dis-

vidual cases of growth slippage was to mar-

pensed . And while this has won Gorbachev

shal more resources and push them into

material production . Real incomes could be
squeezed with impunity (or so the central

many allies it has also exposed much more

visibly the underlying tensions (not least
some explosive national and ethnic issues)
that the reform process seems bound increas-

planners thought), investment could be

ingly to run up against .

could also be increased . For a time strategies

stepped up and rates of labour participation

So far, we have seen much more glasnost

like this seemed to work but the palliative

than perestroika, more of the 'openness' and

was short term . Soon the constraints on this

precious little of the 'restructuring', many

'extensive' growth strategy became visible .

problems but few answers . Despite this the

Sometimes people openly rebelled against

economic pressures for fundamental reform

authoritarian planning and its demands for

of the Soviet system (which this article

ever greater effort for little reward . And if

focuses on) are so compelling that, however

hesitantly,
the Gorbachev
Programme
seems certain to continue . The results,

they did not take to the streets in open

though it is still too early to be sure, could

over, and occasionally participated in, the

yet give socialism (and socialists) a badly

frequently interrupted production of shoddy

needed late twentieth century boost .

and defective products . Notions of good and

protest it was more than likely that they sat

in the factories, grumbling as they watched

honest work vanished on a social scale .

Soviet type central planning - a
system in decline

The failure of technocratic reform

The basic economic problem with Soviet

This prompted several leaderships to

type central planning is that ever since year

think hesitantly about economic reform .

one (1928 in the USSR, twenty years later

Unfortunately, the early thinking, in the

elsewhere) its economic justification was

1960s, was strait-jacketed into highly tech-

that it could deliver fast growth . Khrush-

nocratic management-centred experiments

chev raised the stakes in the global competi-

to raise labour productivity . The main prob-

tion between Soviet socialism and Western

lem with these 'reforms', whether devised in

capitalism by rashly announcing in 1961

Bucharest or Warsaw, East Berlin or Buda-

that, by 1980, the Soviet Union would

overtake the USA as an economic power . 2

pest, was their comprehensive lack of social

content .

But doubts about the dynamic of socialist

In the Soviet Union things were no

growth arose soon after when, for the first

time in the post war period, one of the most

better . The prime minister, Alexei Kosy-

highly developed of the planned economies

the rules for running state firms . The work-

(Czechoslovakia) saw its national income fall

ers, of course, were not consulted . As it

in 1963 by 2 .2% . 3
A little later, as the central planners

happened this was neither here nor there

since the period of 'stagnation', otherwise

studied their performance over the longer

known as rule by Brezhnev, had already

term, they noted a disturbing but discerni-

started . There is some evidence that the

ble trend towards lower rates of growth

Kosygin experiment may have had an initial

alongside growing inefficiencies in resource

impact on productivity but it is most

use . At first the typical response to indi-

unlikely that such a limited reform pack-

gin, put his name, in 1965, to changes in

The USSR

age could have had any enduring effect . In

any case from 1964 until 1982 the Soviet
leadership was committed to a deeply
conservative policy exclusively aimed at
holding the line ; nothing was valued more
highly by Brezhnev than economic and
political stability .

greatest source of strength . They provide his

most effective ammunition in the continuous campaign against the conservatives
in the leadership : armed with these data
Gorbachev rightly insists that things cannot
go on in the old way .
Adjustment to slow growth

The growth rate problem

The official figures in the table below
suggest that the Soviet growth rate picked
up in the mid 1960s but then continued to
decline . It is worth noting that Soviet output data are usually considered to suffer
from upward bias due to a failure to take
account of the true rate of inflation . This
'hidden' inflation is due to systemic features
of Soviet type central-planning and widely
reckoned to be significant . Plan indicators
in gross value of output terms entice managers to shift production into supposedly new
and better quality items (for which higher
prices are allowed) and while the improvement in quality is often dubious there is also
a tendency to cease producing the cheaper
items . Since there is no competition
between firms consumers find that there is
no alternative but to purchase more expensive items in a process of 'forcedsubstitution' . People pay higher prices for
less desirable 'baskets of goods' but the
effect is unrecorded in the official price
indices .
The productivity series may also overstate
the real picture by being based on total
employment rather than hours worked . But
there is general agreement that, particularly
from the mid 1970s, the Soviet economy
shifted onto a less desirable, lower productivity growth path . These are the figures,
says Ed Hewitt, a leading us 'Sovietologist',
that trouble the Soviet leadership more than
anything else . But while they may give Mr
Gorbachev nightmares they are also his

As the Soviet economy has been forced to

adjust to slower growth rates so internal
tensions over resource allocation have
grown . A reading of the official figures in
the table below, reported by Ed Hewitt,
indicates that during the 1970s the leadership seems to have placed the main burden
of the growth slow-down on investment and
defence spending rather than consumption .
Of course, consumption growth slowed
alongside the general downturn in output
growth, but for investment the change was
more dramatic . In the first half of the 1970s
per capita real incomes grew each year on
average by 4 .4% and investment by 7 .0 10c .
In the second part of the decade both
increased by 3 .3% per annum, a much
steeper cut for investment than for consumption . But in the early 1980s things
began to get much tighter for the consumer .
In the first half of the decade investment
growth accelerated slightly to 3 .5 % annum
while consumption growth fell back to
2 . 1 % . As to defence, the data is patchy but
the CIA view, again reported by Hewitt, is
that up to 1976 spending grew roughly on
a par with output at 4% per annum .`
Beyond that date, says the CIA, it slowed to
around 2% per annum . Whatever the precise figures there is little doubt that all
sectors were being squeezed by the
deterioration in economic performance in
the Brezhnev years .

31

Capital & Class

32

Growth still too dependent on

to throw into sharper relief the various

inefficient agriculture

tensions that arise in sharing out the

national cake . It is worth noting that

Since coming to power Gorbachev has

accepted that the old strategy of `extensive

the initial estimate of a 4 .4% growth in

development'

exhausted .
Economic
growth in the future must come from higher

European Markets looks suspiciously high

productivity . Unfortunately, the various

production and only mild improvement in

programmes to increase industrial efficiency

the industry growth rate which rose from

have so far brought little reward . Agricul-

3 .8% in 1987 to 4 .4% . 6 .

Bad luck in the countryside may be

national income for 1988 reported in East

is

alongside more or less stagnant agricultural

ture, which accounts for around 20% of

national output, is also plagued by inefficiency : output growth rates can fluctuate

reversed from one year to another in a short

wildly and by more than might be expected

growth of national output depend too

closely on the weather . But this effect can

term see-saw effect that makes the overall

due to climate alone . In recent years,

growth of 5 .3 % in 1986 was followed by an
increase of only 0 .2% in 1987 and around

be minimised . Bad weather is only one

culpable factor alongside unreliable flow of

0 .7% in 1988 . 5 The large fall in the agricultural growth rate was the main factor

inputs to the farms, lack of interest on the

behind the slip in national income from

effect again) and losses in storage and trans-

4 .1 % in 1986 to only 2 .3 % in 1987 . Now

it need hardly be said that national income

port of farm production .

growth of only 2 .3% per annum is bound

problem . Last year Anglia Television's farm-

part of farm workers (the demoralisation

One example may illustrate the general

Soviet growth and productivity : 1960s to 1980s

Annual average % growth rates
1961-65
Output
Labour productivity

6 .5
5 .5

1966-70

1971-75

1976-80

1981-85

7 .8
6 .8

5 .7
4 .6

4 .4
3 .3

3 .5
3 .1

Note: Output is national income or produced net material product (NMP) ; labour
productivity is NMP growth divided by employment growth .
Source : Reforming the Soviet Economy: Equality versus Efficiency, Edward A . Hewitt,
(The Brookings Institution, Washington DC, 1988), p . 52 .

Things get tighter - the economic squeeze

Average annual % growth rates
Output
Consumption (real income per capita)
Investment
Defence spending

1971-5

1976-80

1981-85

5.7
4.4
7.0
4.0

4 .4
3 .3
3 .3

3 .5
2 .1
3 .5
2 .0

Note: Defence spending data are from the CIA which estimates its growth at around 4%
per annum up to 1976 and 2% per annum over 1976-82 .
Source: Hewitt, as above.

The USSR

ing programme visited a large collective

farm in the fertile Ukraine and watched the

performance of agriculture .
If industry serving agriculture improves

development of the sugar beet crop from

its performance then so much the better but

sowing to harvesting . The end result was a

Gorbachev is well aware that this will take

time . In the short term he is vitally

yield of 14 to 15 tonnes per acre with 15

sugar content of beets . In Norfolk results
were far better ; a yield of 18 tonnes per acre

interested in juggling resources and this no

with up to 18 % sugar content . Now, if the

recently regarding cuts in military spending . Perhaps Gorbachev has done his sums

East Anglian experience could be transposed

to the Ukraine one collective farm could see

doubt helps explain bold statements made

its crop increase by around 20% . Anglia

and worked out just how many 'selfpropelled harvesters' can be made from one

Television attributed the poorer Ukrainian

melted down ss-20 missile?

performance to 'the relative inefficiency of

Soviet farm machinery' . Here is how they
described their findings :
'The harvesting equipment the Ukrainians

A weak us dollar and rock bottom oil

prices also urge speedy reform

were using was old and inadequate for the

size of the task they were attempting . It
consisted of a tractor-drawn machine which
flailed the leaves off the beet six rows at a
time and blew them into a trailer running
alongside to be used later as cattle fodder .
Next came a scalper, also pulled behind a
tractor, which sliced the tops off the roots
as they stood in the soil . Finally came yet
another tractor pulling a lifter/elevator,
which dug the roots out of the land and
delivered them onto another trailer
alongside' .

Unfortunately for the Soviet leader bad

luck has recently come in droves . Quite
apart from the great tragedies of Chernobyl
and the earthquakes in Armenia and Tashkent he has found himself squeezed by
adverse movements in the international
economy . While his economic reforms have
yet to take off he has suffered an enormous
loss in hard currency earnings since the oil
price slumped in 1986 . To make matters
worse, the decline in the value of the us$,
from a recent peak of almost DM3 .5 in early
1985 to a low of DM 1 .56 in January 1988,

The contrast with East Anglian farming

has meant that every barrel of oil sold is

practice is expectedly great, 'on many farms

in Britain these days, the whole job is done

buying less and less on West European

by one self-propelled harvester' .

markets . Slight gains made by the dollar

during 1988 (taking it to around DM1 .8 by

Agricultural performance determines the

early 1989), while helpful to Gorbachev,

flow of foodstuffs to the towns, over which

have hardly altered the underlying situa-

there is much justified grumbling, and

tion . With fuels and raw materials compris-

Gorbachev knows that unless he can bring

about a massive improvement in supply he

ing around 85-90% of Soviet exports to the

West, there is little that can be done other

is going to end up in trouble . In the early

than to restrain the growth of imports from

phase of perestroika, expectations were

raised but not fulfilled, and Gorbachev's

the West .

stock among ordinary people began to

decline . The long term squeeze on resources

stubbornly below expectations, and agricul-

due to the trend slow down in the growth

poor weather on the economy, while the oil

price remains low and the $ in fundamen-

rate is exacerbated regularly by the deficient

C&C 38-C

While industrial productivity remains

tural inefficiencies multiply the effect of

33

Capital & Class

34

tally a poor state, it is perhaps no wonder

means of putting the bureaucracy under

that Gorbachev is compelled to act ever

social scrutiny and pressure . This is having

more decisively and boldly in the interna-

an impact already according to Geoffrey

tional arena to find ways of easing the

Hosking who, in his Reith lectures on BBC

pressure on domestic resources .

radio last November, spoke about an emerging 'nation of barrack room lawyers' ; the
people, (at least in Moscow) are, it seems,
only too eager to take on officials and com-

The big question - will Soviet

plain about shoddy goods, bad service and

corruption . Hosking believes this greater

workers accept reform?

Kremlin gazers in the West speculate on

legal awareness to be 'one of the most

Gorbachev's chances of success through a

significant social changes in the last genera-

not very sophisticated calculus, that is

tion or so' . And in a society where general

largely based on who stands next to whom

principles and accepted rules of conduct

on the podium at various Red Square and

other rallies . Despite this it is easy to agree

have usually played second fiddle to the

arbitrary (ab)use of power by a bloated

that the Gorbachev programme faces for-

bureaucracy, these changes should not be

midable obstacles . One is certainly the huge

underrated .

Soviet bureaucracy (up to 18 mn people)

Unfortunately for Gorbachev, and the

which must be the prime victim of decentralisation plus democratisation . The mili-

social stratum he represents, the bureauc-

tary complex is clearly less trouble for

enemy . He has yet to convince the bulk of

Gorbachev following a number of well publicised fiascoes including the Rust affair

people,
Soviet workers,
the ordinary
that reforms will be good for them . Their

when the young West German successfully

patience, by all accounts, is wearing thin as

landed his light aircraft in Red Square . The

military establishment may even have come

the shelves in the shops carry less and less .

round to the view that its own self interest

formance in 1988 put national income

is best served by perestroika. In any case

growth at a barely credible 4 .4%, with

Gorbachev could hardly have been able to

industrial output also up by 4 .4% but

announce

conventional force

consumer goods production up by only

reductions in central Europe, as he did in

3 .9% . 8 A Soviet newspaper report of late

December, quoted by the Financial Times'
Moscow correspondent, Quentin Peel,

unilateral

December 1988, if he did not have the

military under control .

racy is not his only or perhaps even his chief

Initial Soviet estimates for economic per-

the broad constellation of pro and anti

noted that, 'the list of goods in short supply

is growing . It is difficult to buy colour

reform elements in Soviet society . His

televisions and

democratisation is precisely an attempt to

is almost impossible to buy video-tape

machines . Washing machines and refriger-

The general secretary is certainly aware of

generate reform enthusiasm among key

groups . And he has made impressive gains
among the natural allies of political reform

tape

recorders,

and

it

ators have disappeared . Shelves of shoes and

linen are bare' . 9

in the intelligentsia and cultural circles . But

When to this sorry state is added the even

democratisation was designed with more

greater problem of persuading the people to

than this in mind . It is clear that Gorbachev

accept new rules of the economic game,

views

with

including the prospect of unemployment, it

respect for principles of legality, as a crucial

is clear that Gorbachev, even with the

democratisation,

together

The USSR
bureaucracy under attack from the 'barrack

Khrushchev was twenty five years earlier .

room lawyers', has problems . Indeed the

But

apparatchiks when they momentarily escape

exhausted there can be no rerun of the 1960s

the attention of 'Irate of Sverdlovsk' can be

in the 1990s . The consequences of failure

expected to manipulate to their advantage

workers' fears of an insecure future . But

could be dire, with justifiable fears that the

superpower in decline might lash out unpre-

there is surely no other way to tackle these

dictably with its only strength, its armed

problems other than by pressing ahead on

forces .

with

traditional

growth

reserves

the road to greater democracy as Gorbachev

seems intent to do .
Conventional Western (and not a few

Hope for the future

Eastern) interpretations of the Gorbachev

reform programme see it as a victory for the

Despite all the problems that are likely to

'market' over the plan . But Gorbachev is no

appear the Gorbachev reform programme

Johnny-come-lately knocking at the doors of

seems to offer the Soviet peoples their best

Chicago University or its London subsidi-

prospect for the future . The party leadership

ary, the Institute for Economic Affairs .

From the beginning, but with greater force

appears to have come round in a remarkably

short period of time to the view that reform

more recently, he has recognised that, in

in the late twentieth century in the USSR

Soviet conditions, progress is impossible

demands the active participation of society .

without deep democratisation . Already this

No doubt the politburo, having launched

has been enshrined in new possibilities for

participation in work-place decision mak-

the reform, would like to continue to con-

ing . To be sure the new enterprise laws that

liberalization that has already taken place is

trol it . This may not be possible . The

permit workers to elect management (not to

unlikely to be easily reversed, and the

be found, to the best of my knowledge, in

reform process will surely go well beyond

any blueprints drawn up in the Kremlin .

any IEA handbook) have got off to a timid

start, but after 50 years of Stalinism what
else could be expected?
Now all of this is not to argue that the

Many socialists in the West may still be

inclined to an over-critical view of the

general secretary of the Soviet communist

Gorbachev phenomenon . But a glance

around the 'local' political and economic

party has undergone a Damascus like con-

landscape, dominated still by the mean and

version in favour of popular participation . It

narrow policies of Thatcher and Reagan, is

is much more that Gorbachev, with his

bleak and uninspiring . Gorbachev, on the

sophisticated understanding of the forces in

other hand, whether from necessity or con-

Soviet society, appreciates full well the great

viction, speaks from a policy base that has

conservatism that pervades it, the legacy of

Stalin and Brezhnev . No doubt he hopes to

led, over recent months, to the announce-

manage the process of social change with

least damage done to the role of the party

ment of unilateral arms reductions in

Europe and the promise at home to convert

knows for sure that unless he can win over

an ever greater part of military production

to meet consumers' needs . It is as if,
reported Hella Pick in the Guardian, 10 he

substantial sections of the Soviet working

had driven a bulldozer through the conven-

class in favour of his reforms the modernisa-

tional assumptions of East-West confronta-

tion programme will grind to a halt and he

tion . Yet all he did was to insist that it

will find himself as outmanoeuvred as

should not be beyond human wit to con-

in day to day life . Whatever his hopes he

35

Capital & Class

36 struct a system of international relations

based on something other than blackmail
and intimidation . Of course most Western
politicians
responded
characteristically
churlishly with their cries of 'not enough' or
`wait and see' . But then few would have
expected anything else . Under immense
economic pressure the Soviet Union may
have no other course than to transform
swords into ploughshares . If it does then we
will all have cause to be grateful to Mikhail
Gorbachev .

Notes
1 . I am grateful to the Capital and Class
editiorial team for helpful comments on the first
draft of this article . Thanks also to Harold Goodwin of the Camden Adult Education Institute .
The usual disclaimers of course apply .
2 . See The 1961 Party Programme, reprinted
in Leonard Schapiro ed, The USSR and the Future,
(Praeger, 1963), p . 285 .
3 . See Judy Bart, Economic Reform and Political Change in Eastern Europe, (Macmillan, 1988)

See Hewitt p . 68 .
See, Economic Survey of Europe 1987-88,
(United Nations Economic Commission for
Europe, Geneva, 1988) and East European Markets, (Financial Times Business Information Ltd),
10 February 1989 .
6 . East European Markets, 10 February
1989, reports initial Soviet estimates for growth
in 1988 . However the figures appear inconsistent . It is hard to see how NMP can grow by the
reported 4 .4% when agriculture expanded by
only 0 .7 % and industry by 4 .4 % . The agriculture figure looks about right bearing in mind
relatively disappointing harvest results . The
industry figure would be an improvement on the
3 .8% growth of 1987 and just about achievable
if the Gorbachev reforms are beginning to work .
But even so this would imply NMP growth of no
more than around 3 .7
7 . 'Hard Labour in Soviet Agriculture',
Financial Times, November 8, 1988 .
8 . East European Markets, (Financial Times
Business Information), Vol . 9, Issue No . 3,
February 10, 1989 .
9 . 'Top Soviet backing for consumer
imports', Financial Times, November 3, 1988 .
10 . The Guardian, December 9, 1988 .
4.
5.