The downfall of the Soviet Union has been attributed to different causes for decades. It is generally agreed upon that Mikhail Gorbachev’s reforms did not accomplish what they were intended to do - transition the Soviet Union from a state-controlled to a partial market economy to pull it out of stagnation - and thus failed to stop the dissolution of the USSR. However, could the USSR have lasted indefinitely without his intervention, or was the empire’s implosion inevitable?

The economic collapse of the USSR had been approaching for decades, but Mikhail Gorbachev’s reforms accelerated its downfall. Before Gorbachev rose to power, budget deficits and trade imbalance pushed the nation farther and farther into crippling debt. The militarization of the economy devoted a disproportionate amount of money to war preparations, preventing advancement in other sectors. In an attempt to maintain control over restless satellite states, the Soviets sold them natural resources at substantially below-market prices. A decrease in oil prices caused an abrupt drop in Soviet income. Agricultural investments offered low yields as the sector became increasingly inefficient and unproductive. The manufacturing sector was plagued by labor, input, and machinery shortages. After Gorbachev came to power and instituted perestroika, the restructuring of the state-controlled economy to a more market-like one, its unintended consequences pushed the already unstable Union into collapse.

Before perestroika, the Soviet Union had a planned, state-controlled, economy. Government officials controlled the types, quantities, and prices of manufactured goods and exports, and provided jobs to all citizens. However, the government’s assurance to keep all citizens employed meant that workers were not incentivized to be as efficient as possible; their main focus was meeting production quotas (The Breakup of the Soviet Union Explained). With the introduction of perestroika in 1985, Gorbachev decentralized monetary controls by removing some of the Gosplan, or State Planning Commission’s power. Conforming to some state-enforced guidelines, manufacturers were granted increased autonomy; they could now choose what to produce, in what quantities, and for what prices.

Some incorrectly believe that had it not been for Gorbachev’s reforms, the Soviet Union had a strong enough economic foundation to last indefinitely, as the economy saw positive, albeit modest, economic growth from 1950 to 1973. During that time, the annual average GDP per capita growth was 3.6% (Maddison). Although this lagged Western economies (for example, the United States’ growth average from 1960 to 1973 was 6.42%), it was substantial enough to keep the nation afloat (U.S. GDP Per Capita). Even during the period of worldwide economic stagnation from 1974 to 1985, the USSR’s GDP per capita grew at a rate of 0.93% annually. Perestroika’s introduction led to rampant inflation and destabilization of the economy, which exposed the cracks in the economic foundation. During the reform years (1985-1991), GDP per capita growth declined at an average rate of -1.3% annually (Maddison 478-79). However, although Gorbachev’s reforms did not benefit the economy, perestroika was not the sole factor in the USSR’s demise. Other causes included budget deficits, trade deficits, over-reliance on oil, declining oil prices, and agricultural and industrial productivity. In his book, Perestroika: New Thinking for Our Country and the World, Gorbachev explains that perestroika was intended to restore the weakened economy, writing that ‘perestroika is an urgent necessity… Any delay in beginning perestroika could have led to an exacerbated internal situation in the near future, which… would have been frought with serious social, economic, and political crises… An unbiased and honest approach led us to the only logical conclusion that the country was verging on crisis.’ (Gorbachev 3-10). The Soviet Union’s foundation was certainly not strong enough to support the nation indefinitely; in fact, it was already on the brink of economic collapse. Furthermore, the authenticity of Soviet data reports has been questioned; the post-World War II economy may not have been as successful as it was reported to be (Nove 351). Although perestroika was ultimately detrimental to the Soviet Union, the economy had many intractable issues that predated Gorbachev.

One such issue was excess military spending. Cold War tensions between the USSR and the United States were high following World War II, leading to the militarization of the economy. Although tensions seemed to de-escalate in the 1970s, the Soviet-Afghan war reintroduced Cold War tensions and reaccelerated military spending. From 1970 to 1980, 15-20% of Soviet GDP was spent on militarization (Ray). In contrast, the United States, the USSR’s Cold War adversary, only spent an average of 5.85% of GDP annually on the military during this same time period (U.S. Military Spending). In addition, growing the nation’s GDP was subordinated to producing military equipment and weaponry. Many advancements seen as remotely useful to the military were considered classified and not permitted for civilian use (Clarke 11). Even the production of essential consumer goods (like food) to meet the basic needs of the people was not prioritized. Militarization took focus away from other sectors, causing them to be resource-constrained and technologically underdeveloped compared to other nations.

Furthermore, the number of consumer goods produced did not meet demand, so manufactured goods were imported. Besides necessities, the Soviets also imported advanced technological items. However, the USSR was importing more goods than they were exporting; by 1975, the USSR had a trade deficit of 12.3 billion U.S. dollars (Cook; Gaidar). By the 1980s, the budget deficit in the Soviet Union accounted for 10% of their GDP (Schodolski). The Soviet Union could not pay for these imports because they did not have hard currency (United States dollars or gold) and could not pay for imported goods in rubles. Their reserves of money from export could not cover the costs of the imported goods. Imports exceeded exports, causing a trade deficit. This issue was mostly resolved, however, by the oil crisis in the 1970s. A surge in oil prices led the Soviet Union to increase their oil exports, temporarily lessening the trade imbalance. They also started exporting more raw materials such as minerals, lumber, and grain. By 1985, the trade deficit had decreased from 12.3 billion to 8.7 billion dollars (Gaidar). However, widely fluctuating prices made oil an inconsistent source of income; as oil made up 35% of Soviet GDP, this was highly risky for their economy (Doder).

This risk became evident during the steep oil price drop in the mid-1980s. When Saudi Arabia increased their oil exports, causing a surplus of oil, oil prices significantly declined. This decrease in prices slowed GDP growth, caused a lack of hard currency for imports, and worsened the trade imbalance. To combat this, the Soviets were forced to stop importing as many consumer goods. However, as citizens relied on these imports, this decision deepened shortages. In 1989, oil prices continued to decline. Due to the long-standing overuse of their lower-cost oil reserves, oil production costs rose for the Soviets. Since oil prices were simultaneously decreasing, the Soviets slowed oil extraction. From 1990 to 1991, oil exports dropped by 33% and value by 44%. This dealt a damaging blow to the economy, outside of Gorbachev’s control. Even without perestroika, such a drop in income would have imploded the economy.

The agriculture industry faced persistent productivity concerns and low returns. Russia had a frigid climate and frequent droughts, resulting in shortened growing seasons and reduced yields. After World War II, the USSR transitioned from individual to collective farms during a period of industrialization. As a result, productivity increased due to improved efficiency, though these gains were lower than those realized by other countries. In the 1960s, the Soviet Union exported more crops than they imported. By the 1970s, demand for grain to feed animals was rising faster than yields were, so the USSR sought new ways to increase its agricultural productivity. To solve this, the Soviets invested in making the Siberian land farmable, but their attempts were futile (Bellinger). Excessive chemical fertilization made soil inhospitable. Costly attempts at irrigation systems provided few benefits; the Soviets even drained the Aral Sea in the process (Bellinger). The cost of industrializing these extremely cold regions was not worth the largely disappointing results, but the government persisted. The resulting grain shortages caused the Soviets to import grain in the 1970s, which further exacerbated the trade deficit; in 1981, the balance of trade for agriculture hit its lowest point at approximately -31 billion U.S. dollars (Cook 196). When Gorbachev came to power in 1985, he condemned the lack of progress, writing that ‘one of the biggest producers of grain for food, [the Soviet Union] nevertheless has to buy millions of tons of grain a year for fodder.’ (Gorbachev 7). Attempts to improve Soviet agricultural productivity did not improve yields or address growing demand, mandating an increase in grain imports that worsened the trade deficit.

Wasting resources, slowing productivity growth, and expansion costs in Siberia plagued the manufacturing sector for decades. After World War II, the United States implemented the Marshall Plan, which granted money to Western European countries for reconstruction. In response, the USSR gave their satellite states raw materials and subsidies at below-market rates and bought their low-quality outputs (Nove 322-323). Although the manufacturing sector showed considerable progress during this time period, progress stalled by the early 1970s due to labor and resource shortages (Bellinger). Women continued to work immediately following the war, expanding the available workforce. However, these labor reserves were quickly exhausted due to continued industrialization. The lack of available workers limited possible gains in the economy. To combat this, workers would have to increase their productivity; not only were the gains insufficient, but they were decelerating. Annual average productivity growth from 1950 to 1978 was only 3.3%, but it dropped to 1.5% between 1978 and 1990 (Maddison). Coupled with a steadily increasing demand, insufficient productivity gains further expanded supply shortages.

Productivity issues were worsened by misguided attempts to increase output. Although replacing older machinery would likely increase production speed and quality in the future, manufacturers worried that transitioning to new machinery would cause a gap in output, causing them to fall short of production targets. To avoid this, they purchased new machines while keeping the old ones running; the Soviets were saddled with these obsolete, dysfunctional machines. In the United States at this time, the replacement rate was 60%, while in the USSR it was only 30% (Popov). Keeping old equipment neither maximized output gains nor improved efficiency. Beginning in the 1970s, new factories were built in remote regions such as Siberia to expand the location of industry in case of war. However, machines had to be altered to function in Siberia’s polar temperatures, people demanded much higher wages to work in such harsh areas, and transport from these factories was costly (Gaddy and Hill). Industrial advancements were much more expensive than they had ever been.

Although these increasingly concerning economic issues were a significant contributor to the end of the Soviet Union, Mikhail Gorbachev’s economic reform policies exacerbated extensive shortages and inflation rates. Perestroika failed to revitalize the stagnant planned economy. Under these reforms, the state delegated wage determination to employee-elected councils, designed to motivate workers to work harder. The workers, who now had significantly more control over their wages, increased their salaries. As citizens now had heightened buying power, demand for consumer goods rose. The growing demand drove prices up, negating the wage increases (Cook). This deepened shortages and contributed to high inflation rates. Perestroika also lessened governmental price restrictions. The State Planning Commission (commonly referred to as the Gosplan) allowed manufacturers to set their own prices, abiding by some state guidelines. However, this disorganized the output control that had previously structured the economy. Furthermore, companies began to buy existing basic items at state-controlled (lower) prices, make minuscule changes to circumvent price regulations, and sell them at a considerable markup. The resulting shortage of basic goods drove their prices high enough to raise inflation (Kotz 79). Perestroika’s disruption of the Soviet economy furthered shortages of necessities and skyrocketed inflation. Although perestroika was not the sole factor in the USSR’s demise, it hastened the Union’s collapse.

The Soviet Union's economic collapse had been looming for decades, but Mikhail Gorbachev's reforms hastened its demise. Before Mikhail Gorbachev’s rule, budget deficits and trade imbalances drove the country farther into debt. The militarization of the economy stifled progress in other areas while allocating a disproportionate amount of resources to war preparations. The Soviets supplied natural resources to discontented satellite states at well below market prices in order to preemptively quell rebellion. The fall in oil prices resulted in a considerable reduction in Soviet GDP. Agricultural investments yielded minimal returns as that sector became increasingly inefficient and unproductive. Labor, input, and machinery shortages hampered the manufacturing industry. Perestroika’s detrimental consequences were among the final nails in the coffin leading to the collapse of the USSR. It is worth mentioning, however, that there were several other contributors to the Soviet Union’s downfall, such as glasnost, Chernobyl, and internal political tensions. Glasnost, another of Gorbachev’s reform attempts, focused on freedom of speech and unfiltered media reporting. The new dissemination of unflattering information about the government and the cover-up of the Chernobyl nuclear disaster caused many Soviet citizens to lose trust in governmental competency. Government officials, including those in Gorbachev’s party, tried to undermine him in myriad ways, including an attempted coup to remove Gorbachev from power. Although these factors certainly merit recognition, the nation’s economic disrepair, along with an ineffective reform program, were the main causes of the USSR’s climactic end.