The Soviet System: From Crisis to Collapse

By Alexander Dallin; Gail W. Lapidus | Go to book overview

29 The Effort Collapses

MARSHALL GOLDMAN

Once having stumbled, Gorbachev found it virtually impossible to regain his balance. By mid-1987, possibly even beginning in late 1986, the damage had already been done. After two years or so of poor results, he had lost much of his credibility, at least on economic matters. Thereafter, the crisis began to build. By mid‐ 1988 the decline was becoming evident and important economic institutions were beginning to disintegrate. Even if he had an ideal program at that point, he would have had a great deal of difficulty redressing his past mistakes. By that time only massive radical surgery could have rescued the economy.

At the core of his problem was a macroeconomic difficulty of his own making. Heretofore Soviet officials, including Gorbachev and his economic advisers, thought only in terms of central plans and administrative decision making. Macro- and microeconomics were capitalist system-type issues that had no relevance for a centrally planned economy. Stalin in effect had decreed null and void the impact of taxes, expenditures, monetary policy, interest rates (macroeconomics), and supply and demand, and competition (microeconomics) played little or no role. Unaccustomed to paying attention to such matters, they ignored signs of runaway inflation until it was too late.

For decades Soviet officials had insisted that the national budget was in balance. Even though this was not true, they did not worry about such things. And as we saw, when even a Politburo member like Gorbachev asked Andropov if there were budget deficits, he was told that it was nothing he should worry about. More important to the Soviet leadership was whether or not the five-year plans were in balance. This approach was a natural reaction from engineers who predominated in Gosplan's offices. They understood the need to balance physical supplies, but not revenues and expenditures. Consequently an unbalanced budget in their eyes would not have made much difference.

When unexpectedly in October 1988 it was announced as part of glasnost that the Soviet budget had been running a deficit since 1976, the reaction was initially more one of bemusement than one of great concern. 1 That there had been budget deficits for a long period of time and that the public had not been informed apparently seemed to have made little difference. As far as most economists could ascertain, the economy in that period operated much as it usually did. Moreover, this was not the only time the government had lied. [Even Gorbachev, as we saw earlier, was denied a full accounting by Andropov when he tried to find out if the Soviet Union had a budget deficit.]

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