Assignment: Grossly Distorted Budget
This system of central planning succeeded in making the Soviet Union a first-rate military power, but at a crushing cost to the consumer economy, which was all but nonexistent. Grossly distorted budget priorities and mounting debt were disguised by artificial prices, press censorship, and secrecy. By the mid-1980s, the Soviet Union was at a huge competitive disadvantage with industrialized democratic nations such as the United States, Japan, and the members of the European Union, and it was falling further behind all the time.*
An entrenched elite known as the nomenklatura occupied all the top positions in the Soviet system.* Included in this system of power and privilege were key members of the party and state bureaucracy. The hidden world of luxury apartments, specialty shops, vacation resorts, hospitals, health spas, and schools was an open secret—one that stood in sharp contrast to the bleak existence of ordinary Soviet citizens and made a mockery of the “classless society” Marx had envisioned.
In short, Gorbachev faced a stark choice: push reforms or preside over the death of the Soviet state. In the end, he did both.
The Politics of Reform
Gorbachev’s reforms became known to the world as perestroika (restructuring) and glasnost (transparency), plus a promise of democratization. Clearly, what Gorbachev had in mind was nothing less than a state-controlled revolution from above. Unfortunately, the revolution spun out of control.
The goal of perestroika was to revitalize the ossified system of central planning. Gorbachev endeavored to reduce power of the entrenched party and state bureaucracy, improve worker productivity, change the culture of cheating, stealing, and cynicism, et cetera. But serious market reforms—breaking up the woefully inefficient state enterprises, introducing real competition, or privatization—were not in the picture. Hence, perestroika became a catchy political slogan rather than a coherent economic policy. By 1989, the Soviet economy was rapidly disintegrating, and within two years it had plunged into a depression.
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