Three decades ago the socialist experiment in Russia finally collapsed, leaving behind a record of economic and social backwardness. The fall of the Iron Curtain revealed the failure of state intervention and central planning.
On December 25, 1991, the Union of Soviet Socialist Republics (USSR) happily dissolved after a long process of economic agony and prolonged political instability.
The fall of the USSR marked the end of totalitarian dictatorship in Russia and some of its neighboring countries. It is the regime par excellence that almost completely removed economic freedom, civil freedom and political freedom in all those countries it united. He discovered the failure of communist ideology and centralized planning as an alternative to social organization.
The final fall of the Iron Curtain inspired the need for reformism not only in the post-Soviet economies, but also in many developing economies with severe imbalances in Latin America, Asia and Africa.
FROM THE GROWTH TO THE STAGNATION OF THE SOCIALIST ECONOMY
The Soviet economy began to show clear signs of exhaustion at the level of production of goods and services from the second half of the 1970s, and by 1980 stagnation was undeniable.
The timid reforms of the system attempted by the Nikita Khrushchev administration, among them the wage reform of 1956 and the decentralization of the Liberman reform of 1965, ended up failing, unable to fulfill their sole objective: to support the growth of long-term economy.
Without a price system capable of reflecting people’s preferences, and faced with a total lack of incentives compatible with individual initiative, the planned economy was unable to efficiently identify how much, how, or exactly what to produce.
This was the main problem that socialism could never solve: the impossibility of replacing the price system with any other alternative capable of providing the same information. Production guidelines were simply placed within five-year programs and citizens were reduced to being raw material within an action plan.
While in a modern economy capital fluctuates between sectors through signals set by the price system, in a regime planned by the state allocations are made according to political criteria, with arbitrary guidelines or even with techniques that do not have sufficient information.
The Soviet Union experienced strong economic growth between the 1950s and 1960s, as even while arbitrarily allocating resources, the state created sectors from scratch that would otherwise have been unthinkable (for example, the development of heavy industry in a country that originally was agricultural.
But as the short-term effects wore off, the economic system stagnated due to the accumulation of all those inefficiencies that could not be detected without a price system.
Without a price system, it was completely impossible to assess the economic meaning of the successive arbitrary projects that defined the five-year plans. The Soviet Union faced a long process of decapitalization and technological backwardness, which culminated in the stagnation of the productivity of the factors of the economy. In this way, the boom of the 1960s turned into a severe slump.
FINAL COLLAPSE
The final collapse of the planned economy occurred when it was impossible to maintain a situation of productive stagnation, and at the same time a strong imbalance of “monetary surplus”.
This phenomenon occurs when the state expands the money supply, but society’s actors are unable to make these resources flow to purchase goods or services because of controls of all kinds: arbitrarily set prices and/or strictly regulated quantities.
Thus, a type of suppressed inflation typical of planned economies is produced, as a result of the lack of coordination of arbitrary allocations between the determination of prices and quantities and the determination of monetary expansion.
The USSR was forced to reintroduce the ration card system in the late 1960s and early 1970s in response to alarming episodes of shortages. Goods began to become scarce throughout the country. In response, there was no choice but to forcefully reduce people’s consumption and submit to survival.
The economic reforms of Perestroika under the leadership of Mikhail Gorbachev tried to reduce the shortage of goods. In December 1990 In 1990 the Soviet Union adopted a monetary reform and in April 1991 official prices rose brutally by 63.5%.
But Gorbachev’s reform failed. The economy went into recession due to the impossibility of solving the inefficiencies of the system, shortages continued and industrial activity fell 21% between December 1988 and December 1991. And in the face of the failure of reforms, the dictatorship faced a political collapse. ended with the dissolution of the regime on December 25.
The system of price suppression collapsed in January 1992 and the CPI rose by 245% in that month alone. The economic depression deepened along with the explosion of inflation. The reformist efforts of the first president of the newly created Russian Federation, Boris Yeltsin, were limited and overshadowed by the survival of the Socialist Constitution of 1978.
After a severe political crisis between September and October 1993, Yeltsin succeeded in removing socialism from the Constitution and laid the foundations for Russia’s economic and social transformation. Prices gradually returned to stability starting in 1995 and economic activity emerged from the depression in 1996.
“We have a lot of everything: land, oil, gas, other natural resources, and God did not offend us even in terms of intelligence and talents. But we have lived much worse than in developed countries. The reason for this was clear: society was suffocated by the pincers of a bureaucratic and authoritarian system. You can’t go on living like this, everything had to change radically,” Gorbachev admitted in his resignation speech in December 1991.
POVERTY AND SOCIAL MARGINALITY
Formally, the Soviet Union systematically denied the existence of poverty, which was understood as an ideological problem and exclusively related to the market economy. Under a “just socialist society,” the very existence of “poverty” was claimed to be impossible.
However, the regime began to recognize the so-called “income poor” from the 1970s. The American researcher A. McAlley found that, below a threshold of 50 rubles, 69.5% of the Soviet population lived in poverty around 1958, and approximately between 35% and 40% for 1968 using a lower basket of 30 rubles per month. .
Around 1988, the State Statistics Committee of the Soviet Union began to officially measure the “minimum consumer budget”, according to which the standard of living was studied. By 1989, the number of people below this threshold represented 25% of the Soviet population according to strictly official figures.
The situation worsened further between 1990 and 1991, and the State Committee admitted that up to 30% of the Soviet population had a monthly income below the subsistence level. Up to 90 million people, in a fully socialist economy and under the pretext of “social equality”, did not meet minimum standards of quality of life.
With information from The Right Daily
