In a simplified way, the story of the collapse of the Soviet Union could be told as a story about grain and oil.
That is from Yegor Gaidar. In the 1980s it was necessary to import more and more grain, and Saudi Arabia was no longer supporting oil prices. It worked like this:
The timeline of the collapse of the Soviet Union can be traced to September 13, 1985. On this date, Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically. The Saudis stopped protecting oil prices, and Saudi Arabia quickly regained its share in the world market. During the next six months, oil production in Saudi Arabia increased fourfold, while oil prices collapsed by approximately the same amount in real terms.
As a result, the Soviet Union lost approximately $20 billion per year, money without which the country simply could not survive. The Soviet leadership was confronted with a difficult decision on how to adjust. There were three options--or a combination of three options--available to the Soviet leadership.
First, dissolve the Eastern European empire and effectively stop barter trade in oil and gas with the Socialist bloc countries, and start charging hard currency for the hydrocarbons. This choice, however, involved convincing the Soviet leadership in 1985 to negate completely the results of World War II. In reality, the leader who proposed this idea at the CPSU Central Committee meeting at that time risked losing his position as general secretary.
Second, drastically reduce Soviet food imports by $20 billion, the amount the Soviet Union lost when oil prices collapsed. But in practical terms, this option meant the introduction of food rationing at rates similar to those used during World War II. The Soviet leadership understood the consequences: the Soviet system would not survive for even one month. This idea was never seriously discussed.
Third, implement radical cuts in the military-industrial complex. With this option, however, the Soviet leadership risked serious conflict with regional and industrial elites, since a large number of Soviet cities depended solely on the military-industrial complex. This choice was also never seriously considered.
Unable to realize any of the above solutions, the Soviet leadership decided to adopt a policy of effectively disregarding the problem in hopes that it would somehow wither away. Instead of implementing actual reforms, the Soviet Union started to borrow money from abroad while its international credit rating was still strong. It borrowed heavily from 1985 to 1988, but in 1989 the Soviet economy stalled completely...
The money was suddenly gone. The Soviet Union tried to create a consortium of 300 banks to provide a large loan for the Soviet Union in 1989, but was informed that only five of them would participate and, as a result, the loan would be twenty times smaller than needed. The Soviet Union then received a final warning from the Deutsche Bank and from its international partners that the funds would never come from commercial sources. Instead, if the Soviet Union urgently needed the money, it would have to start negotiations directly with Western governments about so-called politically motivated credits.
In 1985 the idea that the Soviet Union would begin bargaining for money in exchange for political concessions would have sounded absolutely preposterous to the Soviet leadership. In 1989 it became a reality, and Gorbachev understood the need for at least $100 billion from the West to prop up the oil-dependent Soviet economy.
Here is the full article.
Here's why I suspect there is a lot of truth in this.
An interesting tale told me by one of those great fiction artists, an academic Economist, shed some light on the collapse of the economy of the USSR.
It was a planned economy, one in which markets did not provide price the signals an individual business needed in order to plan and function over a period of time. The end of the planned economy was brought about using what was called "Shock therapy" by Economists like Jeffery Sax. Suddenly, bad as it had frequently been under central planning, individual businesses had no idea where to get their raw materials nor did that know what they would be likely to cost. Most of the businesses that did survive this period were large, raw material-based industries run as monopolies. They were large enough to internalize the central planning process that was abandoned by Moscow. Most of the rest of the economy simply didn't survive the change-over.
In the meantime, government was getting out of the business of providing housing, health care and such basic amenities to the population.
For a little over half a decade, the manufactured output of the entire economy of the USSR had a market value that was significantly less than what could have been obtained simply by selling the raw materials used by the economy on the world market. This is fascinating. The entire economy of the USSR actually created a net reduction of the value of the raw materials it had to work with. If this has ever happened over a lengthy period of time to any other economy in the world I certainly have not learned of it.
Given that amazing ~negative~ economic output, the Russian government had to borrow money internationally just to allow a larger percentage of the population to survive. As it is, the reduction in life spans clearly shows what a strain the entire economy was under. A reduction in military spending or in corruption (alternative proposed reasons for the economic problems of the USSR) would have only the effect of limiting distribution of income.
Given these economic circumstances, this story makes a lot of sense. Victor Putin's recent international aggressiveness towards the U.S. rather suggests that the Russian economy has recovered a great deal from the late 80's and early 90's. Putin's nasty tone towards Bush is probably more of a distraction for his population than a real threat towards the U.S., since life spans and general quality of life are recovering slowly.
Any agreements or disagreements?
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