All Commentary
Thursday, August 1, 1996

The Political History of Economic Reform in Russia, 1985-1994

The Testimony of an Important Witness to Communism's Failure

Dr. Maltsev is associate professor of economics at Carthage College in Wisconsin.

The economic and political collapse of the Soviet Union was a surprise only to the CIA, Sovietologists, and fellow travelers of Communism in the West. For people like Dr. Vladimir Mau, who followed the direction of economic and political developments in the USSR from inside of the socialist Leviathan, it was obvious that the disaster was coming, and coming soon. Mau’s The Political History of Economic Reform in Russia, 1985-1994, stands out as a story of an insider, a testimony of an important witness. Dr. Mau was a part of the team of senior Soviet economists working on the economic reforms of President Gorbachev at the Institute of Economics of the Academy of Science of the USSR. Today he heads the Moscow Institute for the Economy in Transition, an influential think-tank among Moscow reformers. Like any “insider’s story,” Dr. Mau’s book is highly partisan: he takes sides and he is an ardent advocate of economic and political liberty.

Dr. Mau begins his analysis with a short history of previous attempts to reform Soviet socialism, in which he shows that reforms would only be introduced as a last resort for saving Communism, not abandoning it (as the Western well-wishers would try to portray it).

The social tragedy known as the Bolshevik Revolution of 1917 was not an isolated event in Russian history, states Dr. Mau. “The state traditionally played a major role in Russian economy. . . .” The huge bureaucratic regulatory state was the direct predecessor of socialism. “Not without reason,” writes Dr. Mau, “were the basic forms of economic centralism, later raised to an absolute by the Bolsheviks, determined and tested in practice by the pre-revolutionary Russian governments, both Tsarist and Provisional.”

Moving forward 60 years, the first sign of the coming Soviet economic collapse at the end of the 1970s and the beginning of the 1980s was an urgency to increase state subsidies to unprofitable enterprises. By the mid-1980s, the deterioration of the Soviet economy reached a critical point. More than 50 percent of state business enterprises were permanently unprofitable and survived due to the huge subsidies, while the agricultural sector required an infusion of more than 100 billion rubles in the years 1986-1988 to support the feudal collective farm system based on state ownership of land and forced labor. Productivity declined and shortages (as well as corresponding rationing of consumer goods) became widespread.

Perestroika was the last and most far-reaching attempt to reform Soviet-type socialism while preserving the fundamental features of that society—`the socialist choice of the people,’ as Gorbachev in his time liked to say. At the same time perestroika led to the breakthrough out of socialism and laid the foundations for the post-socialist (post-communist) development of the country.” This “breakthrough out of socialism” had nothing to do with ill-devised and never implemented “economic reforms” of Gorbachev’s confidants, who could not go beyond Marxist political economy to mention issues of private property and markets. The whole idea of perestroika was to “improve socialism” by certain organizational measures. The true reason for the demise of socialism and the Soviet empire as Mau puts it “was the weakening of political control” (p. 46). With perestroika, the ailing regime lost its repressive underpinning and the “socialist economic mechanism,” built upon repression, fell like a house of cards.

The end of 1991 marked the collapse of both—the Soviet economic system and the Soviet Union as a unitary state. There had occurred two radical changes which had long-term and all-embracing economic and political consequences. First, the policy of late-socialist reformism had been replaced with one aimed at solving post-communist transformation problems. Second, the center of gravity of this process had shifted onto the level of the former Soviet republics, which had just become independent states.

Reviewing the post-Communist economic transition, Dr. Mau points to the widespread frustration with the “free market” reforms of Yeltsin’s government that led to the situation in which every new announcement of impending reform causes perverse public responses and new legislation passed, ostensibly to increase freedom, but which only increases opportunities for fines and bribes. Today, it is obvious that economic and political developments in Russia are taking the path toward even more government intervention, towards the creation of the essentially fascist economy coupled with a totalitarian political regime. Recent resolutions of the Duma attacking the West and calling for the restoration of the former Soviet empire illustrate this sad conclusion.

The major lesson to be learned from this examination of the administrative-command system is that it failed because of internal contradictions, not human error. Subsequent generations, attracted by the appealing but illusory features of the administrative-command system—equality, job rights, managed growth—may conclude that the system itself was sound. In this flawed but popular view, Soviet managers from the late 1920s through the early 1990s simply could not do it right due to some technical or cultural factors. Such a conclusion could lead to a repetition of the deadly experiment with results that would perhaps not be foreseen by future generations.

The failure of socialism in Russia and enormous suffering and hardship of the people in all of the so-called socialist countries warn strongly against socialism, statism, and interventionism in the West. Yet one of the saddest legacies of Marxism is the mindset of certain people both in the East and West who started to believe that only the Big State can cure economic ills and achieve social justice. Dr. Mau’s book is another testimony that this path will inevitably lead the follower down the road to serfdom.

  • Professor Yuri Maltsev earned his B.A. and M.A. degrees at Moscow State University, and his Ph.D. in Labor Economics at the Institute of Labor Research in Moscow, Russia. Before defecting to the United States in 1989, he was a member of a senior Soviet economics team that worked on President Gorbachev’s reforms package of perestroika.