Initial situation
When Mikhail Gorbachev became General Secretary of the CPSU in March 1985, the economic situation in the Soviet Union was rather unsatisfactory. Since the second half of Brezhnev's term, economic growth had been declining. When Gorbachev took office, the growth rate was only slightly above two percent. This was comparable to the United States (3%) or the European Community (1.6%), but did not meet the CPSU's self-imposed goals. In many sectors of the economy, production figures were declining, and the quality of products often did not meet international standards. There was an inefficient and non-transparent shadow economy.
Agriculture was not able to sufficiently supply the population. Losses had to be recorded from the scarce production because the transport and storage system was inadequately developed. Even the cultivation of the land granted to the collective farmers as private plots (5% of the production area) could not compensate for the weaknesses inherent in the system.
Science and technology were also out of step with the general trend. The declining number of citations in scientific journals is a hallmark of the downward trend. In the important high-tech field, the Soviet Union was increasingly without success. On the other hand, military and armament expenditures weighed on the already strained economic and research situation. The Soviet-Afghan war intensified this negative development. The general corruption and the shadow economy could not be contained even at the time of Yuri Andropov. Thus, the administration and management lacked the necessary qualifications to run the country and the economy, as party work, target fulfillment, and line loyalty were important virtues. Reliable information on the state of the country was available only to a limited extent.
Gorbachev and his advisors knew that things were bad and that quick action was needed. He and the reformers in the party set their sights on implementing reforms in the party, the state and the economy.
In the run-up to the reforms
Given such a long period of stagnation in the party and the Soviet Union, the two reform fields of glasnost and perestroika required considerable preparation and personalities who could develop, explain and implement the reforms. Among the reformers appointed by Gorbachev to the Central Committee Secretariat or the CPSU Politburo were Yakovlev, Medvedev, Sagladin, Frolov, and Slunkov. Economists and scientists such as Abalkin, Pavlov, Sitaryan, and Popov supported the new course. Prime Minister Ryzhkov welcomed the reform approach, but other Politburo members were hesitant.
As early as 1983, the rights of companies in some sectors had been strengthened on a trial basis. In July 1985, this system was extended to companies in other sectors, such as mechanical engineering and the food industry. In 1986, resolutions of the Politburo against embezzlement, bribery and extortion were passed with only moderate success. At the beginning of 1987, the conversion of the economy was to be extended to all enterprises. The economic situation in these sectors improved slightly at first, only to suffer a severe setback by 1987.
Since April 1985, the reform discussion began under the term "acceleration of socio-economic development"; in November 1985, the Politburo approved the first steps "on further perfection ..."; in early 1986, the term acceleration was increasingly replaced by perestroika; in mid-1986, the discussion intensified. Finally, at the January 1987 plenary session of the Central Committee, a draft law on economic reform was approved. In March 1987, the reform concept was further developed. At the plenary session of the CPSU Central Committee in June 1987, Gorbachev presented his "basic theses", which formed the political basis of the economic reforms. In July 1987, the preparatory process was largely completed in the Central Committee, and the laws were then put in place.
Implementation and results
The intended transformation of society was announced by Gorbachev at the January plenum of the CPSU Central Committee on 28 January 1987.
In domestic policy
From mid-1988 onwards, perestroika was intended to give socialism a democratic face, above all through principally free elections, the separation of powers and the expansion of the principle of the rule of law, thereby stabilising the entire Eastern bloc, while preserving the privileged position of the Communist Party of the Soviet Union (CPSU). The domestic reforms were also referred to by Gorbachev with the slogan Demokratisaziya (Russian: Демократизация, "democratization").
At the 19th CPSU Party Conference in June, the body of Gorbachev and intellectuals decided to convene a People's Deputies Congress as the supreme legislative body. Although one-third of the 2250 members were to be de facto delegated by the party, elections with several candidates - not several parties - were introduced at the local level. This open election campaign, with some debates televised directly, caused great astonishment among the population. Gorbachev hoped to break up encrusted political structures in this way and thus find more support for his reforms in the political apparatus.
In foreign policy
In order to bring greater prosperity to the citizens in the USSR in the long term, the policy of détente was to be continued and the arms race between the USSR and the USA was to be ended. On December 8, 1987, Ronald Reagan and Mikhail Gorbachev signed the INF Treaty, which included the dismantling of all medium-range missiles in Europe. At the same time, negotiations on the START I Treaty resumed in 1985. In addition, the Soviet Union drastically reduced military support for communist rebel movements in African and Latin American countries and withdrew from Afghanistan in 1989 (see Afghan Civil War and Soviet Intervention). In this context, the United Nations should also be more involved.
The communist form of government was now no longer decisive. With the abolition of the Brezhnev Doctrine, each socialist state was free to decide which state ideology it would adhere to. Gorbachev stated that if any state decided to turn away from socialism, the Soviet Union would not intervene. This also encouraged countries allied with the Soviet Union to reform.
In the economy
In July 1987, the Supreme Soviet adopted the "Law on State Enterprises", which allowed state enterprises to orient their production to actual needs. Although the enterprises still had to fulfil state orders, they were otherwise free to produce and distribute according to their own ideas. The law made enterprises responsible for their own finances: they had to cover their expenses (wages, taxes, materials and debts) with income. They were also free to negotiate prices with their suppliers. The government refrained from continuing to rescue unprofitable firms from imminent bankruptcy. Moreover, the law shifted control over companies from ministries to elected workers' collectives. The task of Gosplan (Государственный комитет по планированию, State Committee for Planning) was to set only general guidelines and priority national investments, not detailed production plans.
The "Law on Cooperatives" was enacted in May 1988. For the first time since Lenin's New Economic Policy (NEP), private enterprises were again allowed in the service, production and foreign trade sectors. Originally, the law included high taxes and employment restrictions, but it was later corrected so as not to restrict private sector activity. Under these provisions, cooperative restaurants, stores, and manufacturers became part of the Soviet economy.
Gorbachev brought perestroika to the Soviet Union's foreign trade sector on a scale that Soviet economists at the time called audacious. His program basically eliminated the then trade monopoly of the Ministry of Foreign Trade. Industrial and agricultural ministries now no longer had to turn to the bureaucratic organizations of the Ministry of Foreign Trade, but could independently conduct foreign trade within their jurisdiction. In addition, regional and local organizations were allowed to conduct foreign trade. These changes were an attempt to eliminate a major grievance in Soviet foreign trade: the lack of contact between Soviet end users and suppliers and their foreign partners.
Gorbachev's most significant foreign economic reform allowed foreigners to invest in the Soviet Union - in the form of joint ventures with Soviet ministries, state enterprises or cooperatives. The first version of the Soviet "joint venture law" came into force in June 1987. It allowed a foreign share of no more than 49 percent in the joint venture and required that the chairmanship and management be Soviet. After potential Western partners complained, the government allowed foreigners majority ownership and control of the joint ventures. Under the terms of the "joint venture law," the Soviet partners provided labor, infrastructure, and a potentially large domestic market. The foreign partners provided capital, technology, economic expertise, and in many cases products and services.
Gorbachev's economic changes did not bring about a new beginning in the country's struggling economy in the late 1980s. The reforms decentralized many things, but fixed prices remained, as did the ruble's non-convertibility and the government's control over much of production.
Gorbachev formulated his concept for the "transformation of economic relations" in mid-1988 through the following five points:
- Overcoming the alienation of man from property
- Democratisation of production. Reform of planning and management, cooperation etc.
- Commodity-money relationship, market.
- Decentralization of the economy.
- social justice issue
