Gorbachev economics

• Long term economic weaknesses of the Soviet Union

  • Lack of incentives resulting in lower labour productivity
  • Waste due to rewarding production over quality
  • Failure to modernise agriculture and lack of sophisticated machinery
  • Arms race leading to increased defense spending
  • Centralisation of the economy controlled by government administrators
• Gorbachev recognised the Soviet economy was stagnating and embraced economic reform
• Phases of perestroika in terms of economic reforms

  1. Rationalisation

  2. Reform

  3. Transformation
• Alcohol Campaign (1985)


  1. Reduced alcohol production by 50% but failed as consumption remained high

  2. Campaign abandoned in 1988
• Acceleration (uskorenie)


  1. Introduced to end economic stagnation by increasing investment to modernise the economy

  2. Failed due to falling global oil prices and increased borrowing from the West leading to economic crisis
• Economic policy change from late 1986


  From trying to save the centrally planned system to reforming it
• Law on Individual Economic Activity made it legal for families and individuals to make money from small-scale work

  Nov 1986
• Law on State Enterprise devolved power from central government to factory management allowing them to set prices for production


  1987
• Law on Co-operatives made it legal to set up large-scale private companies


  1988
• Gosplan finally abolished in 1990
• Reforms created a partial market causing economic chaos with shortages and decline in GDP
• Gorbachev's approval rating dropped from 52% in Dec 1989 to 21% in Nov 1990 due to economic performance
• Faith in Communist Party declined leading to support for nationalist movements across Soviet Union
• Transformation process of introducing a market economy

  1. Abandoning attempts to save the Soviet command economy

  2. Introduction of private property and trading of stocks and shares
• '500 Day Programme' published in August 1990 by Shatalin and Yavlinsky for complete marketisation
• Economy continued to decline with falling oil production, steel, and tractor production
• By summer 1991, Soviet and republican governments were bankrupt
• Yeltsin proposed full marketisation programme in Oct 1991 but faced difficulties in implementation