Gorbachev graffiti

The Soviet Collapse and Its Lessons for Modern Russia: Gaidar Revisited

December 22, 2016
Simon Saradzhyan

In his 2007 book “Collapse of an Empire: Lessons for Modern Russia” the late Russian prime minister and economist Yegor Gaidar identified key drivers behind the disintegration of the Soviet Union 25 years ago, drawing lessons for the Russia of the 2000s. I have taken the liberty of trying to discern whether some of these factors may be relevant for today’s Russia. It appears that many of them are either absent or not as robust in the Russia of 2016. However, while modern Russia is far from teetering on the verge of collapse as the Soviet Union was in the late 1980s, its leadership still needs to address longer-term challenges to Russian statehood before they significantly weaken the country.

Gaidar identified about a dozen structural, longer-term factors and several more immediate triggers whose confluence led to the disintegration of the Soviet Union. The predominant factor was the inefficiency of the Soviet economy, which could not cope with a sharp drop in revenues from oil exports. That drop caused the regime to default on its socio-political contract with the Soviet population, which was much more extensive and rigid than the one between President Vladimir Putin and the people of post-Soviet Russia, according to Gaidar. The Soviet regime didn’t pursue fundamental reforms in earnest even when its leaders realized that such reforms had become a matter of life and death. The last Soviet leader, Mikhail Gorbachev, stalled out of concern that the population and parts of the elite would not accept the painful sacrifices such reforms required. Gaidar, who can fairly be called the father of market reforms in post-Soviet Russia, argues that in the absence of action by the Soviet government falling oil prices triggered a “crisis in balance of payments and [the] accounting system that developed into a broader economic crisis and led to a steep decline in production and standards of living, political destabilization and finally collapse.”

Like the Soviet Union, the Russia of the 1990s and 2000s was also dependent on exporting commodities, whose prices are volatile, and, therefore, it remained likely to suffer an economic recession if these prices fell and stayed low, Gaidar warned in his book. (Indeed his forecast came true in 2015-2016 when a decline in oil prices served as the leading cause of Russia’s economic recession.) However, the Russia of the 2000s had a softer version of authoritarianism than the Soviet Union of the 1980s. Structurally, therefore, the post-Soviet regime was better suited to stave off major political instability in the short to medium term, he argued.

Russia has evolved in many ways since Gaidar’s analysis, but some of the challenges he identified remain. Therefore, it’s worth taking a second look at the drivers behind the Soviet collapse and assessing which of them may be relevant for today’s Russia or could become relevant in the near to medium-term future.

The chart below compares the conditions in the Soviet Union as described by Gaidar with those in today’s Russia, in an attempt to glean some lessons from the latter days of the Soviet Union.

Long-term drivers that, according to Gaidar, contributed to collapse of USSR Relevance of these drivers for today’s Russia, in the author’s view
General inefficiency and non-competiveness of the Soviet planned economy, including non-competitive industrial sector, inefficient oil extraction and inefficient labor. Not quite relevant. In spite of the dominance of the state sector and its inefficiency relative to leading economies, Russia’s remains a market economy that is more efficient and competitive than the USSR’s planned economy.

Integration into the world economy that manifested itself in:

  • Dependence on imports of grain, food, industrial tools, which required payment in hard currency.
  • Dependence of budget revenues on exports of volatile commodities to world markets (oil).

 

  • Somewhat relevant. While Russia is even more integrated into the world economy than the USSR ever was, it is not as dependent on imports of tools. Though the Western sanctions introduced in 2014 have deprived Russia’s defense, aerospace and oil industries of some key technologies, they continued to function. Moreover, the defense industry is posed to grow by 10% in 2016, while the oil industry posted another post-Soviet production record. While Russia continues to import more than 30% of its food, it has become a lead exporter of grain: The Financial Times cited a forecast last summer that Russia would export more grain this year than any other country.  

 

  • Relevant. As stated above, Russia is even more integrated into the world economy than the USSR. The decline in world energy prices in the past several years has decreased the share of oil and gas revenues in Russia’s federal budget, but they still accounted for 34% this year, according to the reliable RBC news agency. Oil rents accounted for 10% of Soviet Russia’s GDP as of 1989; they accounted for 12.7% of post-Soviet Russia’s GDP as of 2014, according to the World Bank.

 

Rigidness of opposition by the powerful military-industrial lobby to any significant cuts in defense spending even though it was an unbearable burden on the budget in the latter days of the Soviet Union. Not relevant. The Russian military-industrial complex is no match for its Soviet predecessor when it comes to influencing government decisions. Putin—who enjoys greater personal power than Gorbachev—has shown no qualms about reshuffling top defense officials and managers as he sees fit. Hence, while Russia continued to increase financing of its military-industrial complex even as the economy contracted in 2015-2016, the government’s 2017-2019 budget provides for defense expenditures to decrease by 6% next year. As of 2015, Russian defense expenditures accounted for 5.4% of the country’s GDP, according to SIPRI. In comparison, their share was 18-23% in Gorbachev’s USSR, according to the Soviet government.
Inefficiency of agricultural sector. Not quite relevant. Russia’s agricultural sector is not as efficient as that of Western countries and the share of loss-making enterprises continues to hover at 15%, but, again, in spite of protectionist measures, Russian agriculture largely plays by market rules. The sector has grown by 3% in the past few years, according to the Russian government, even though the economy shrank as a whole in 2015-2016. Moreover, Russia has been able to afford banning imports of Western food and to maintain that ban for over a year. As stated above, Russia has been forecast to become the world’s largest exporter of grain, while Gorbachev’s USSR had to spend increasingly scarce hard currency reserves to import grain.

Disproportionate geopolitical ambitions, including:

  • Global competition/arms race with U.S. in spite of economic disparity. (Soviet Union’s economy was ¼ that of the U.S., yet Soviet Union maintained military parity with U.S.)
  • War in Afghanistan.
  • Massive subsidies to allies and clients.
Not relevant, at least for now. Russia has far fewer allies and clients and spends much less money on propping them up than the USSR. While the Soviet Union viewed the entire world as an arena for a zero-sum game with the U.S., Putin prefers to intervene only when he sees Russia’s vital interests threatened. While Russia did launch military campaigns in Ukraine and Syria on Putin’s watch, the Russian leader is careful to keep costs of these campaigns under control. The Syria campaign has reportedly cost less than 3% of the country’s defense budget.
Distinct ethnic entities within the state. Relevant. Russia has more than a dozen so-called ethnic republics in its federation.
Absence of checks and balances to rigorously evaluate policy proposals; political system allowed no meaningful comprehensive policy debates.  Relevant. The decision-making is concentrated in Putin’s narrow circle with only limited debate of certain issues tolerated within the government. The Kremlin also effectively controls both the judicial and legislative branches of power. Civil society and mass media, which serve as informal checks on authorities in democratic societies, are also increasingly under the control of pro-Kremlin entities.
Quality of ruling elite low due to promotion of inadequately educated loyalists. Relevant. The decision-making is concentrated in Putin’s narrow circle with only limited debate of certain issues tolerated within the government. The Kremlin also effectively controls both the judicial and legislative branches of power. Civil society and mass media, which serve as informal checks on authorities in democratic societies, are also increasingly under the control of pro-Kremlin entities.
Quality of ruling elite low due to promotion of inadequately educated loyalists. Somewhat relevant. Nepotism remains rampant in Russia with children of top government figures often occupying high positions in Russia’s leading companies. It is illustrative that Putin’s aide and confidant Sergei Ivanov once quipped that the Soviet system of training cadres was the best and should be reinstated.
Poor access to quality information and analysis—it took Gorbachev three years to understand the scale and nature of the problems facing the country. Not relevant. Putin’s Russia is nowhere as open as liberal democracies of the West, but it is still far more open than the USSR of the mid-1980s, with a wealth of information and data available on key indicators of Russia’s development to anyone who has time to research them.
Ideological constraints over strategy and decision-making. Not relevant. While Putin and his government preach conservatism publicly to woo supporters both at home and abroad, Russia’s leaders are extremely pragmatic in their policies, especially in foreign policy.
Popular access to foreign sources of information on freedoms and well-being of other nations. More relevant for Russia than it ever was for USSR. Most Russians can freely travel abroad and those with access to internet can access alternative sources of information and analysis to compare their lives and rights to those enjoyed by residents of other countries.

Short-term drivers

Relevance of these drivers for today’s Russia, in the author’s view
Failure to re-affirm the key conviction that the state could use unlimited force to suppress expression of dissatisfaction.  Not relevant. Initially Gorbachev’s regime tried to quell anti-Soviet protests with force (breaking up demonstrations in Tbilisi in April 1989 was one example). Eventually, however, he gave up on forceful methods. In contrast, the post-Soviet Russian leadership showed consistent commitment to using force against opposition. Boris Yeltsin’s use of tanks to stop the 1993 parliamentary coup, Russia’s past military campaigns in Chechnya in the 1990s-2000s, the ongoing counter-insurgency operation in the broader North Caucasus and the forceful dispersion of demonstrations around the time of Putin’s May 2012 inauguration all prove that the Russian state is prepared to use force against its citizens on a massive scale if it deems such actions necessary.
Popular conviction that the regime has become corrupt and ineffective.   Relevant. Russia shares the 119th spot with Guyana in the list of 167 countries in Transparency International’s latest Corruption Perception Index (the lower the spot—the greater the perception of corruption). As many as 76% of Russians believe that the government is ridden with corruption, according to Russia’s independent Levada Center pollster. The Russian public’s perceptions of crooked authorities are fueled by regularly reported allegations of corruption in the ruling elite, such as the recent arrest of police colonel Dmitry Zakharchenko, whose alleged total wealth of more than $459 million would make him 172nd on the list of Russia’s richest, or revelations that one-time railways chief and Putin’s friend Vladimir Yakunin allegedly owns a $75 million mansion outside Moscow, although he has warned ordinary Russians to resist the Western vice of consumerism. The continuing decline in real incomes has also fueled Russians’ doubts about the authorities’ ability to effectively manage the country. Half of Russians do not approve of the Russian government’s work, according to the Levada Center.
Politically conditioned foreign loans. Not relevant. Russia’s external debt totaled $516 billion as of earlier this year. Most of that sum was corporate debt, however, and the federal authorities still had almost $400 billion in hard currency and gold reserves as of December 2016 to avoid taking politically conditioned loans, which Gorbachev’s USSR had to take.

Three main economic mistakes made by Gorbachev:

  • Limitations on sale of alcohol, which significantly reduced budget revenues.
  • Launch of a capital-intensive but ineffective economic acceleration program that drained the budget.
  • Reduction of imports of industrial goods.
Not relevant.
   

Gaidar concluded his book with an assertion that the risks of destabilization in the Russia of the 2000s were “much lower” than those in the USSR of the 1980s, but warned that the “risks attendant on an inability to adapt and the growth of the country’s dependence on dynamics not controllable by the regime” had not disappeared. I cannot agree more. Yes, as stated at the outset and demonstrated by the table above, many of the central factors behind the USSR’s disintegration are either absent or not as robust in today’s Russia. Looking forward, however, Russia is facing a number of formidable long-term challenges, including an obsolete and inefficient economic model, poor quality of governance, pervasive corruption, fragility of demographic improvements, instability in neighboring countries and separatist threats to Russia itself. Tackling these challenges would likely require launching and patiently implementing deep structural reforms that may lead to an initial decline in living standards, run contrary to the interests of some of the entrenched clans that support Putin and ultimately weaken the president’s strong grip on the country. As a rule, long-time rulers avoid deep reforms late in their tenure. I have doubts that Putin—who has been running Russia since December 1999—will prove to be an exception to this rule unless these challenges culminate in an acute and lasting crisis.

Author

Simon Saradzhyan

Simon Saradzhyan is the director of Russia Matters and assistant director of the Belfer Center's U.S.-Russia Initiative to Prevent Nuclear Terrorism.

Photo from Pixabay.