Soviet Economic Reform: From Resurgence to Retrenchment?

Abstract

When Mikhail Gorbachev became General Secretary of the CPSU in March 1985, he inherited an economy beset with serious economic problems. Rates of growth of GNP and industrial production had slowed markedly, especially during the preceding decade. Agricultural output was stagnating, forcing the state to use large amounts of scarce hard currency to import food. Improvements in living standards had become so small as to be barely perceptible to the population, shortages and queues were endemic, and the underground economy seemed to be flourishing. With money incomes growing considerably faster than supplies of goods and services, work incentives were impaired, and inflationary pressures increased. Overall productivity had been declining, and the technological gap with the West seemed to be widening. After nearly sixty years of rapid industrialization, the economy's manufactures were largely unsalable in the West, its consumer goods were shoddy by comparison, and much of the social infrastructure was in a primitive state. Finally, Gorbachev inherited an entrenched and rigid economic system-socialist central planning-that clearly was obsolete. At the root of these growing difficulties was the gross waste of resources in the economy, its sluggish receptivity to innovation, and its unresponsiveness to consumer needs-all direct outcomes of an economic system obviously ripe for fundamental reform. Such had been the perception of the Brezhnev leadership two decades earlier, when it launched the 1965 reform program, then touted as the third great economic reform in all Soviet history.' That program reorganized bureaucracies, enlarged the autonomy of enterprises, introduced new forms of incentives, revised prices, moved a little way from central allocation of materials and investment, and sanctioned a more active role for banks. When these measures failed to yield the desired improvement in labor productivity, product quality, and responsiveness to innovation, the government adopted decree after decree throughout the 1970s and early 1980s in a perpetual effort to solve these and other problems through