Russia. A History полностью

The principal thrust of Gorbachev’s strategy, however, was a huge increase in capital investment—the traditional Soviet recipe for raising the rate of economic growth. Gorbachev promoted an ‘acceleration’ (uskorenie) that was indeed ambitious—a twofold increase in investment which, he predicted, would increase industrial output 20 per cent in the next fifteen years. He also resorted to deficit financing; given the drop in state revenues and the reluctance to limit consumption (by raising prices on deficit goods), Gorbachev chose to cover the budget deficit by expanding the monetary supply and by relying on domestic and especially foreign loans and credits. That strategy presumed that the increased investment could overcome structural problems and eventually recoup the ‘loans’ through higher rates of economic growth.

Economy: Structural Constraints

Like most of the élite, Gorbachev lacked a rudimentary economic education needed for understanding the structural problems that beset the Soviet economy. Simply put, since the 1970s the Soviet economy came to depend less on growth than the export of raw materials, especially oil, natural gas, metals, and other commodities. By the mid-1980s, that strategy foundered partly because of new global dynamics, above all the drop in prices for energy, but also because of the stagnation in domestic production. In the case of oil, for example, the price plunged from 70 dollars a barrel in 1979–81 to just 20 dollars in the mid-1980s. Simultaneously, Soviet production—which had increased in the 1960s and 1970s—suddenly faltered; the exploitation of new oil and gas fields became increasingly difficult and expensive, and precisely at a time when investment capital was scarce and needed for other sectors for Gorbachev’s ‘acceleration’. Indeed, 1985—Gorbachev’s first year as general secretary—recorded the first decrease in oil production. The future was indeed bleak: Soviet economists calculated that the country needed to increase its investment nearly fivefold merely to maintain current levels of production. Nor, when oil prices were high, had the regime built up a reserve fund; rather, having squandered the windfall of the 1970s, it increasingly had to rely on loans and credits, using export earnings to serve its mounting debt.

Agriculture was equally problematic. Confronted with unstable harvests and low productivity, the government invested heavily in agriculture and at a rate far exceeding that of Western countries. Thus, despite the priority of ‘acceleration’ and mounting economic problems, the government allocated substantial resources to agriculture (17.1 per cent of all capital investment, 1985–90). Nevertheless, the agricultural sector failed to meet domestic demand and forced the government to divert hard currency to import grain from abroad. It abjured the alternative (raising food prices), fearing that this would exacerbate popular discontent over the ubiquitous ‘deficits’. The government therefore continued to sell staples at below-cost prices—20 per cent for bread, 74 per cent for beef, and 61 per cent for milk.

As a result, Gorbachev’s government piled up budgetary deficits. On the one hand, it had declining revenues—largely because of the fall in earnings from energy exports, but also because of the sharp contraction in excise taxes (from the anti-alcohol campaign). On the other hand, the government indulged in a spending spree as it simultaneously sought to subsidize agriculture, stimulate industrial growth, import foreign goods, and keep low prices for consumer goods. To finance this budget deficit, the Gorbachev regime assumed new debts (which rose from 18.1 billion dollars in 1981 to 27.2 billion in 1988, and still more sharply over the next few years). By 1990, however, it became increasingly difficult to service the foreign debt, and authorities reported that they had to use ‘almost the entire income from the oil and gas exports’ to pay the interest on the debt. Gorbachev was well aware of the deficit and debt, but saw no alternative to the imports: ‘We have to buy, because we cannot live without this.’

International Dynamics

Gorbachev, an expert in agriculture but not in international relations, nevertheless made the latter sphere integral to his strategy for change. Above all, he believed that a resumption of détente—better relations with the West—would enable Moscow to ratchet down military expenditures and thereby free more funds for ‘acceleration’. He therefore made international relations a priority and, aided by his new minister of foreign affairs, Eduard Shevardnadze, took charge of foreign affairs and directed diplomats and party functionaries to ‘rethink’ the country’s foreign policy.