A common story that Americans tell themselves about the collapse of the Soviet Union goes like this: upon entering office, Ronald Reagan boosted US military spending, forcing the USSR to spend more, too. In time, Soviet budget deficits compounded other economic mismanagement and culminated in the Union’s disintegration in late 1991. At some point, Reagan also urged Soviet General Secretary Mikhail Gorbachev to remove a symbolic wall, and Gorbachev, perhaps stirred by the president’s soaring rhetoric, complied.
Another explanation—and one with more evidence behind it—holds that the USSR was a victim of the late ‘80s oil glut. Falling oil and gas prices gutted Soviet exports, crippling the economy and leading to collapse.
In his new book, The Struggle to Save the Soviet Economy: Mikhail Gorbachev and the Collapse of the USSR, Chris Miller argues that neither account gets the Soviet economic crisis right. Neither Reagan nor oil, but domestic politics and powerful interest groups brought down the Soviet Union, Miller said during a talk at Columbia University’s Harriman Institute on Wednesday, Feb. 1. Miller is associate director of the Brady-Johnson Program in Grand Strategy at Yale.
By the mid-80s, the Soviet economy was stagnant but not in crisis, Miller said. Growth had slowed, but budget deficits were small. Gorbachev sought to kickstart the economy by implementing a series of market reforms, many borrowed from China, which with its high growth and familiar institutions offered the Soviets an attractive model. These reforms came to be known as perestroika, or “restructuring.”
Among other liberalizing measures, China’s Deng Xiaoping had permitted firms to sell surplus production and, with “household-responsibility” agriculture, essentially de-collectivized the farms. The result was booming GDP growth throughout the 1980s, which Gorbachev wanted to replicate. Moreover, since the Chinese Communist Party had modeled many state institutions on the USSR of the 1950s, Deng’s reforms seemed like a good fit.
Unlike Deng, however, Gorbachev encountered stiff resistance from Party insiders. The Soviet economy was dominated by massive, state-owned military, energy and agricultural complexes—this last representing “the triumph of socialism in the countryside.” High-level officials in the Politburo and other Soviet institutions condemned Gorbachev’s reforms for opening the door to capitalism, but then followed their critiques with appeals for more funding for pet industries. Again and again, Miller found in the notes of Politburo meetings this ideological opposition paired with requests for money.
According to Miller, Gorbachev was only able to proceed with perestroika by striking a bargain. In exchange for Chinese-style reforms, he agreed to invest in industries on whose behalf top officials had been lobbying. Soviet agricultural subsidies, already huge, grew even larger. Surplus goods piled up in warehouses. And the country’s budget deficit began to balloon.
After international loans dried up, Gorbachev financed the deficit by printing money. At the same time, he refused to increase prices for fear of provoking mass unrest and alienating his remaining bases of support. Production ground to a halt as firms received ever less valuable rubles for their goods. By 1991, the USSR’s deficit was 30 percent of GDP and its economy was near paralysis. When Yeltsin agreed with the leaders of Ukraine and Belarus to dissolve the Union, Gorbachev was powerless to stop it.
Miller acknowledged that Reagan’s arms buildup and the late-80s oil shock may have destabilized the USSR. But he argued that neither was sufficient on its own to cause Soviet collapse. He pointed to export earnings, comprised almost entirely of oil and gas sales, which dropped from approximately eight to five percent of GDP between 1985 and 1990. While significant, that decline was not decisive.
In short, according to Miller, Gorbachev was weak, while the Soviet Union’s interest groups were strong. In fact, Gorbachev may have pushed democratization as a means of eroding the strength of the interests opposing his reforms. If so, political liberalization took place too slowly to grant Gorbachev the power he needed to override those interests and close the deficit. Where Stalin had made the system work through terror—killing or shuffling top brass before they could become entrenched and therefore threats—Gorbachev was forced to navigate a landscape of powerful opponents. In other words, it was crony socialism, not hostile capitalism, that made sustainable reform of the Soviet Union impossible.