Perestroika

Russian term
перестройка
Translit: perestroika
English: restructuring


Perestroika ( , Russian: Перестройка IPA: [pʲɪrʲɪˈstrojkə]) is the Russian term (now used in English) for the economic reforms introduced in June 1985 by the Soviet leader Mikhail Gorbachev. Its literal meaning is "restructuring," referring to the restructuring of the Soviet economy.

The perestroika program

Enlarge picture
Poster showing Mikhail Gorbachev, with the slogan perestroika
During the initial period (1985-1991) of Mikhail Gorbachev's time in power, he talked about modifying central planning, but did not make any truly fundamental changes (uskoreniye, acceleration). Gorbachev and his team of economic advisers then introduced more fundamental reforms, which became known as perestroika (economic restructuring).

At the June 1987 plenary session of the Central Committee of the Communist Party of the Soviet Union (CPSU), Gorbachev presented his "basic theses," which laid the political foundation of economic reform for the remainder of the existence of the Soviet Union.

In July 1987, the Supreme Soviet passed the Law on State Enterprise. The law stipulated that state enterprises were free to determine output levels based on demand from consumers and other enterprises. Enterprises had to fulfill state orders, but they could dispose of the remaining output as they saw fit. Enterprises bought inputs from suppliers at negotiated contract prices. Under the law, enterprises became self-financing; that is, they had to cover expenses (wages, taxes, supplies, and debt service) through revenues. No longer was the government to rescue unprofitable enterprises that could face bankruptcy. Finally, the law shifted control over the enterprise operations from ministries to elected workers' collectives. Gosplan's (Russian: Государственный комитет по планированию, State Committee for Planning) responsibilities were to supply general guidelines and national investment priorities, not to formulate detailed production plans.

The Law on Cooperatives, enacted in May 1988, was perhaps the most radical of the economic reforms during the early part of the Gorbachev regime. For the first time since Vladimir Lenin's New Economic Policy, the law permitted private ownership of businesses in the services, manufacturing, and foreign-trade sectors. The law initially imposed high taxes and employment restrictions, but it later revised these to avoid discouraging private-sector activity. Under this provision, cooperative restaurants, shops, and manufacturers became part of the Soviet scene.

Gorbachev brought perestroika to the Soviet Union's foreign economic sector with measures that Soviet economists considered bold at that time. His program virtually eliminated the monopoly that the Ministry of Foreign Trade had once held on most trade operations. It permitted the ministries of the various industrial and agricultural branches to conduct foreign trade in sectors under their responsibility rather than having to operate indirectly through the bureaucracy of trade ministry organizations. In addition, regional and local organizations and individual state enterprises were permitted to conduct foreign trade. This change was an attempt to redress a major imperfection in the Soviet foreign trade regime: the lack of contact between Soviet end users and suppliers and their foreign partners.

The most significant of Gorbachev's reforms in the foreign economic sector allowed foreigners to invest in the Soviet Union in the form of joint ventures with Soviet ministries, state enterprises, and cooperatives. The original version of the Soviet Joint Venture Law, which went into effect in June 1987, limited foreign shares of a Soviet venture to 49 percent and required that Soviet citizens occupy the positions of chairman and general manager. After potential Western partners complained, the government revised the regulations to allow majority foreign ownership and control. Under the terms of the Joint Venture Law, the Soviet partner supplied labor, infrastructure, and a potentially large domestic market. The foreign partner supplied capital, technology, entrepreneurial expertise, and, in many cases, products and services of world competitive quality.

Gorbachev's economic changes did not do much to restart the country's sluggish economy in the late 1980s. The reforms decentralized things to some extent, although price controls remained, as did the ruble's inconvertibility and mostly government control over the means of production.

By 1990 the government had virtually lost control over economic conditions. Government spending increased sharply as an increasing number of unprofitable enterprises required state support and consumer price subsidies continued. Tax revenues declined because revenues from the sales of vodka plummeted during the anti-alcohol campaign and because republic and local governments withheld tax revenues from the central government under the growing spirit of regional autonomy. The elimination of central control over production decisions, especially in the consumer goods sector, led to the breakdown in traditional supply-demand relationships without contributing to the formation of new ones. Thus, instead of streamlining the system, Gorbachev's decentralization caused new production bottlenecks.

Unforeseen results of reform

The new system bore the characteristics of neither central planning nor a market economy. Instead, the Soviet economy went from stagnation to deterioration. At the end of 1991, when the union officially dissolved, the national economy was in a virtual tailspin. In 1991 Soviet GDP had declined by 17 percent and was declining at an accelerating rate. Over inflation was becoming a major problem. Between 1990 and 1991, retail prices in the Soviet Union increased 140 percent.

Under these conditions, the general quality of life for the Soviet people deteriorated. The public traditionally faced shortages of durable goods, but under Gorbachev, food, clothes, and other basic necessities were in short supply. Fueled by the liberalized atmosphere of Gorbachev's glasnost and by the general improvement in information access in the late 1980s, public dissatisfaction with economic conditions was becoming much more overt than ever before in the Soviet period. The foreign-trade sector of the Soviet economy also showed signs of deterioration. The total Soviet hard-currency debt increased appreciably, and the Soviet Union, which had established an impeccable record for debt repayment in earlier decades, had accumulated sizable arrears by 1990. It did free up the arts and social sciences in the region and enabled formerly banned literature and films to be reconstructed to a degree, with filmmakers like Sergei Parajanov now out of prison.

In sum, the Soviet Union left a legacy of economic inefficiency and deterioration to the fifteen constituent republics after its breakup in December 1991. Arguably, the shortcomings of the Gorbachev reforms had contributed to the economic decline and eventual destruction of the Soviet Union, leaving Russia and the other successor states to pick up the pieces and to try to mold market economies. At the same time, the Gorbachev programs did start Russia on the precarious road to full-scale economic reform.

The failures of perestroika have led Alexander Zinovyev to coin the word catastroika (Russian катастройка), a blend of катастрофа - "catastrophe" and perestroika. Zinovyev wrote: "the effect of explanatory work has appeared the return desirable. All they wished to avoid, has occurred with double the force... Queues lengthened. Prices in the markets have jumped. At home, in queues, in transport, on work, at assemblies people have openly worn the perestroyka. Uncountable jokes were told. Someone has learned, that the word "perestroyka" is translated on the Greek language by a word "accident". On this basis a new word "katastroyka" has appeared. Pensioners and older Party members saw in perestroika the counterrevolution and betrayal of Lenin's cause". Philip Hanson used this word in his book, From Stagnation to Catastroika: Commentaries on the Soviet Economy, 1983-1991.

Comparison with China

Perestroika and Deng Xiaoping's economic reforms have similar origins but very different effects on their respective countries' economies. Both efforts occurred in large communist countries attempting to modernize their economies, but while China's GDP has grown consistently since the late 1980s (albeit from a much lower level), national GDP in the USSR and in many of its successor states fell precipitously throughout the 1990s[1].

Gorbachev's reforms were largely a top-down attempt at reform, and maintained many of the macroeconomic aspects of the command economy (including price controls, inconvertibility of the ruble, exclusion of private property ownership, and the government monopoly over most means of production). Reform was largely focused on industry and on cooperatives, and a limited role was given to the development of foreign investment and international trade. Factory managers were expected to meet state demands for goods, but to find their own funding. Perestroika reforms went far enough to create new bottlenecks in the Soviet economy, but arguably did not go far enough to effectively streamline it. Chinese economic reform was, by contrast, a bottom-up attempt at reform, focusing on light industry and agriculture (namely allowing peasants to sell produce grown on private holdings at market prices). Economic reforms were fostered through the development of "Special Economic Zones", designed for export and to attract foreign investment, municipally-managed Township and Village Enterprises and a "dual pricing" system leading to the steady phasing out of state-dictated prices. Greater latitude was given to managers of state-owned factories, while capital was made available to them through a reformed banking system and through fiscal policies (in contrast to the fiscal anarchy and fall in revenue experienced by the Soviet government during perestroika).

Another fundamental difference is that where perestroika was accompanied by greater political freedoms under Gorbachev's glasnost policies, Chinese economic reform has been accompanied by continued authoritarian rule and a suppression of political dissidents, most notably at Tiananmen Square.

Summary

The perestroika reforms began the process leading to the dismantling of the Soviet-era command economy and its replacement with a market economy. However, the process arguably exacerbated already existing social and economic tensions within the Soviet Union, and no doubt helped to further nationalism among the constituent republics, as well as social fragmentation. The economic chaos that began with perestroika helped both to empower organized crime and allowed businessmen with the right connections to amass great personal fortunes as Russia's oligarchs. The economic freedoms instituted by Gorbachev under perestroika and the problems caused by these reforms arguably helped to begin the unraveling of Soviet society and hastened the end of the Soviet Union.

See also

References

  • Cohen, Stephen F.; Katrina Vanden Heuvel (1989 repr. 1990). Voices of Glasnost: Interviews With Gorbachev's Reformers. W. W. Norton & Company. ISBN 0393307352. 
  • Gorbachev, Mikhail (1988). Perestroika: New Thinking for Our Country and the World. Harper & Row. ISBN 0-06-091528-5. 
  • Jha, Prem Shankar (2003). The Perilous Road to the Market: The Political Economy of Reform in Russia, India and China. Pluto Press. ISBN 0745318517. 

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