Someone requested that I post this to this blog. At another blog I had written in response to a discussion about the role of Reagan's policies in the demise of the Soviet Union. My opinion was that Reagan did "win the Cold War," but that conditions for his victory did not exist until the eighties. The seventies was a pivotal moment for the USSR: it used consumer production as a substitute for other reforms in order to improve the economy. Combined with other spending imperatives, the Soviet economy was placed on shaky ground.

The response was that this was "absurd." I was livid. The blog author responded that the problems of the Soviet economy could be seen decades before (not something that I would argue with.) I could not believe the lack of respect for my opinion. I wrote this 1500+ word response, focusing not on proving myself right but on showing the intellectual merit of my opinion. I focused on several points: economic limitations of a state need not be fatal; that consumerism was the cause of the demise of some, but not all, communist states; and that the seventies were a pivotal moment for the Soviets as they were forced to confront economic reforms that challenged the party's monopolization of power (the party chose to finance consumption rather than reform Soviet politics.)

Also, please read the account of my vacation to New Mexico. I have just posted part III today. Tomorrow I will describe my brush with a rattlesnake.

First, I am not complaining that there were no structural problems with the Soviet economy until the 1970s. What I am claiming is that they did not become exploitable until the communists attempted to ameliorate their economic structure.

My point was that the need to use consumerism to placate calls for political reforms exposed limitations of the Soviet economy. Did those limitations always exist? Yes. Were they fatal? This is a highly debatable point.

Do economies that have limited capacity for growth ultimately fail? Gerschenkron would say no: they apply a combination of political pressure and force in order to maintain acceptable levels of production. This is especially true of states that have agrarian economies. Prussia, for instance, achieved substantial worldwide influence starting from a feudal economy. The feudal lords (Junkers) joined the state in a project of Central European conquest; the serfs remained a disenfranchised underclass. The undoing of Prussia was not the economy or the political system, but the ambition of the political class in international affairs. They were not inhibited by the structure of the economy. One reason why was because the Junkers learned to coexist with other economic elements in the emerging German state (the Ruhr coal and steel barons.) (See Arno Mayer, Persistence of the Old Regime.) Spain, for a counterpoint, became a world power through the discover of the New World. The precious metals that it received financed military expansion on both land and sea. What Spain did not do was invest in production--the Spanish economy remained fixed in feudal agricultural modes and had little chance of expansion. However, its undoing was not immediate. Spain, as a world power, could have survived had it not been for the changes in warfare. New defensive methods made waging war against cities long and costly. From the late sixteenth to the mid-seventeenth centuries Spain waged war in highly urban areas: for almost eighty years in the Northern Netherlands, and for thirty years in the German Rhineland. Furthermore, Spain committed itself to maintaining dominance in the Mediterranean (as a defense to the expansion of Islam.) In the Spanish case the circumstances that were encountered led to its demise (a slow death while it could barely keep control of its empire.) New World gold flowed through Spain, barely touched by the Spanish themselves, and passed on to foreign merchants and bankers who produced armaments for the crown. (See Parker, The Army of Flanders and the Spanish Road.) The demise of Spain corresponded to the ascent of the Netherlands (or more properly, the United Provinces.) The Dutch perfected merchant capitalism. They introduced financial innovations and greatly expanded the scope of banking (Amsterdam Bank, Wisselbank.) They introduced the concept of private ownership of public services (a popular cry was that anyone could buy stocks in the Dutch East India Company.) Most economic historians would agree that Amsterdam was the "center of the world" until 1690. The economy had no limitations. Why did it decline? The Netherlands failed to industrialize because the economy had been so well perfected--no one willed such change. There were no financial impediments to industrialization. Even after Britain soared ahead on the innovations of Arkwright, the Dutch made no attempt to emulate British factories. (See The First Modern Economy, van der Vries.)

Do communist economies ultimately fail? China is a glaring example of how they might not (of course, the jury is still out.) What has impressed some economists and brought chagrin to the doomsayers is that the Chinese government has proven to be very adaptable to Western intrusion, adopting "limited market reforms" where other communist nations have failed. Some fear that China will marry capitalism to authoritarianism (a point which I would dispute, but that is nonetheless allowable.)

China might be sui generis. How about other communist economies? The collapse of Yugoslavia is almost impossible to explain by reference to economics. There exists a near consensus that national identity played the dominant role in the collapse of Tito's state. I haven't the qualifications to debate this point. I would only point out that Yugoslavia succeeded better than other communist states at producing for the world market, overcoming some of its economic shortcomings.

Eastern European states present the most glaring example of state collapse of the Soviet type. But there appears to be consensus on this issue. Following the 1968 revolutions the hardline communists, after purging their ranks, focused on placating the populace by providing them with consumer goods. It was under the conditions of detente that these governments attempted economic reforms. This worked for a while. However, making consumer goods accessible meant keeping purchasing costs low at the expense of the state. In essence, the state financed consumption. This is a bad sign for any economy: one wants to sell a lot at home to keep production costs low and make back money through exports. The other side of the equation did not work well either: the goods that they produced generally flowed only within the CMEA through exchanges of goods rather than monetary transactions. By the late 1980s the states could not finance consumption or increases production of consumer goods. Consumer issues drove political protests. The trope of the "Blue Jeans" revolution is so pervasive as to be stifling. (See Rothschild, Kaser, Ash ... hell, anyone who is serious about Central and Eastern European studies.) The big exception to this story might be East Germany, which had always been highly endowed with consumer goods (in order to invite comparisons with West Germany; this has probably fueled as much of the current animosity toward Germans as has WWII.) Nationalism (desire to reunite with other Germans) did more to lead to the collapse of Honecker's government.

What about the USSR? Was its demise genetic? After a review of the literature, there appear to be four prevailing opinions. First, Brezhnev undertook economic reforms that led to stagnation in the 1980s that brought the downfall because the Soviet system was incapable of making the necessary political reforms (closest to my opinion.) Second, related to the first, that the stagnation became problematic because of how Gorbachev handled it. Third, that the communist regime had only limited potential from the start (closest to your opinion.) The fourth is surprising. I was not aware of it until I reviewed the lit. It basically says that the problems of the USSR were inherited from the previous governments. The collapse of the Soviet Union should, in this context, be seen as the demise of an Asiatic Russian empire that failed in its European ambitions. (This last view is new to me, but it is somewhat attractive.) There are other views that put the collapse more clearly in the politics rather than economics.

The current guru of economic history, Niall Ferguson, would place the collapse in about the same era as I would:

"From 1950 until around 1974, the Soviet Union enjoyed real GNP growth rates compared to those of the US; indeed in the late 1950s and late 1960s they might even have been higher. But from the mid-1970s Soviet growth lagged behind. High levels of defence expenditure became steadily less burdensome to the US as growth increased in the 1980s. But the Soviet defence burden rose inexorably because the arms race accelerated while the planned economy stagnated. ... The advantage lay with the side capable of paying for armaments without stifling civilian consumption and living standards in the long run." (The Cash Nexus)

Ferguson clearly places consumerism into the mix. The USSR did experience extraordinary growth up until 1970. Brezhnev and other state planner realized that this growth was unstable. Reform of production was becoming critical. However, these reforms could not take place simply through normal economic planning.(G Schroeder) They required greater involvement by workers, either through economic incentives or through political power. The latter was clearly impossible:

"A lesson from ... the Brezhnev years was that tinkering with the command economy would make little fundamental change in economic performance. Some degree of marketization was required. But the more radical the economic reforms that one envisaged, the more likely it seemed that political reform would need to proceed them. The general secretary is not the tsar. If he trods on his colleagues' toes without reducing his dependence on them, he could be removed from the Politburo." (Lieven)

Walter Laquer points out that poverty was pervasive in the Soviet Union. However, the people who lived in shacks and picked wild berries were not the ones to revolt. The ones who did were those of the "middle class" (professionals), the ones for whom "there was enough bread, and virtually everyone had a television" during the 70s and 80s.

The Brezhnev years are difficult to come to terms with. He set out reforms that some would credit with setting the stage for Perestroika. Others, while acknowledging this fact, also point to the muddling of the reforms--that they led to stagnation. (S Cohen)

Consumerism was the only carrot that the communists held out to Soviet citizens. Financing consumption placed greater demands on the economy, further negating the effectiveness of investments in production. The need to engage in production for consumers greatly taxed the Soviet system, displacing pressure from the political arena into the economic. Laquer, however, points to an unwillingness on the part of the political classes to engage political reform rather than on the inability of the communist economy to adapt; the decisions to postpone political reforms intensified economic problems. It is in this context that Reagan's policies must be seen.