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the economic failure's?

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Defected to the U.S.S.R.: 04 Jan 2007, 19:56
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Post 31 Mar 2007, 01:47
why did the soviet's union economy fail in the late 80's? I do think it was gorbachev's fault in perestroika and russia had trouble feeding it's own economy due to a lack of resources.but is cuba and vietnam in risk of having a failing economy?
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Defected to the U.S.S.R.: 02 Dec 2006, 08:09
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Post 31 Mar 2007, 01:55
Massive spending on defence and an expensive war in Afghanistan didn't help either.
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Defected to the U.S.S.R.: 21 Dec 2004, 23:53
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Post 31 Mar 2007, 02:11
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Defected to the U.S.S.R.: 16 Aug 2006, 17:30
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Post 31 Mar 2007, 02:23
1. Massive spending on defense
2. Unnecessary reconnection to the capital markets: borrowing to much money when the intrest was historical low followed by a historical high interest. This means sucking dry the real economy of the USSR.
3. Natural crisis when a country developed itself as a highly industrialized country in the transition towards socialism, every country has this crisis.

How to prevent? Do not spend all your money in defence, do not let any shark of the capital markets rule your economy and prepare yourself for the hard transition towards a postindustrial socialist country (this means more investments in high tech commodities). After that, you did better than most capitalist countries and are on an unstoppable road towards socialism.
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Defected to the U.S.S.R.: 16 Nov 2005, 17:55
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Post 31 Mar 2007, 02:30
I'm sure soviet78 can answer this question really well, so I would ask him.

In Cuba, there was great risk of failure after the fall of the USSR and Comecon (this time between 1991 and ~1998 was called the Special Period), but Cuba has since been able to revitalize its economy through a combination of diversified organic agriculture, the ongoing "Energy Revolution", scaling back of the sugar industry, growth of the biotech industry, tourism, and growing ties with Venezuela.
Last edited by Marshal Konev on 01 Apr 2007, 00:03, edited 1 time in total.
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Defected to the U.S.S.R.: 16 Aug 2006, 17:30
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Post 31 Mar 2007, 02:34
Cuba completely defeated their first crisis and they have now the highest growth rates in their history. It's a shining example for other countries in SA that want to take the road towards democracy, that is socialism.
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Ideology transforms human beings into subjects, leading them to see themselves as self-determining agents when they are in fact shaped by ideological processes. L. Althusser
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Defected to the U.S.S.R.: 07 Oct 2004, 22:04
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Post 31 Mar 2007, 06:48
Quote:
2. Unnecessary reconnection to the capital markets: borrowing to much money when the intrest was historical low followed by a historical high interest. This means sucking dry the real economy of the USSR.


How is this relevant to the USSR?
It never faced a debt crisis in the 1970s, never choosing to borrow heavily like much of the rest of the world, and subsequently not sucked in to paying Western banks when interest rates skyrocketted.

As for defense spending, you guys are all overexaggerating its causal role in the collapse of the economy. Issues like defense spending, the war in Afghanistan, the Chernobyl disaster and the Armenian earthquake could all have been dealt with in the context of a healthy, normally functioning Soviet economy (including the stagnating one of the early 1980s). It was only with Gorbachev's reforms that the state's capacity to deal with such issues began to deteriorate. If you want to use it as a cause for collapse, how do you guys account for the Soviet Union being capable of dealing with it for the 40 years before Perestroika? (And remember, spending levels by the early 1980s were growing very slowly compared to the 1970s).

Quote:
The 1987 Law on State Enterprise would become the first large scale market-reform in the USSR’s post NEP history. Going into effect in 1988, the series of laws gave enterprises and local authorities more decision-making authority over production and input mix, the structure of wages and bonuses, the amount of investment, etc. The number of centrally distributed products was to be reduced from over 13,000 to a mere 618. Enterprises were expected to be financially self-sufficient, with all future capital costs to be financed by sales revenues. Bankruptcy subsequently became possible for inefficient producers. Enterprises also gained the right to import and export through the world economy without government involvement or interference. In accordance with the ideals of glasnost, enterprise directors were to be elected for five year terms by the workers in multi-candidate elections. In 1988 with the passing of the Law on Cooperatives, private businesses in the service, manufacturing and foreign-trade sectors was legalized.

Problems resulting from these initiatives, among others, included an ever-rising discrepancy in the goods to ruble ratio due to rising wages. With direct election and the possibility of removal by workers, managers lost their inherent authority, resulting in declining work discipline. Wages rose in agricultural production, particularly among producers in private and cooperative economic activity, resulting in ever-increasing procurement prices for the state. As the enterprises, newly freed from central authority attempted to reequip and renovate their factories on a mass scale, shortages in inputs thanks to disorganization and the breakdown of planning, along with the rising costs of inputs, resulted in an explosion in unfinished construction. Without the restraints of the market, nor the control of the state, no authority could effectively stop this activity. Investment spending continued to neglect the areas of consumer goods production, agriculture, and transport infrastructure, all of which socialist reformers had argued were key areas to improve upon. The direct impact of neglected transport infrastructure was the insufficient availability of inputs for production, with the inputs themselves often sitting in warehouses and their production stopped due to lack of movement. As for farming, increased prices for farm machinery and other inputs growing faster than productivity meant the state had to raise procurement prices in order to keep farmers afloat, which worked to strain further the already debtor state. The main issues of lack of processing, storage and marketing infrastructure which had caused so much waste under the old system remained undealt with. As a result of inflation and shortages, people spent less time working, and more time looking for goods, resulting in more absenteeism, and less overtime. As real incomes fell, farmers reduced production and/or sold it privately, resulting in food shortages.

As discussed by scholars Andrei Shleifer and Robert Vishny, regarding some of the key economic problems of the perestroika period caused by poorly thought out reforms:

“the combination of repressed inflation, which greatly distorted incentives, with partial liberalization, which completely undermined plan enforcement, led to a breakdown of traditional economic ties and coordination mechanisms in the Soviet economy... Repressed inflation diverted labour away from productive activities and into a search for goods, thus reducing effective labour input. Repressed inflation combined with productive freedom made it attractive for enterprises to hoard intermediate inputs, leading to declines in output and breakdowns in downstream production. Repressed inflation combined with the freedom to choose trading partners led firms to resell or barter their output to higher-paying customers, leaving traditional customers without supplies and so reducing production downstream.”

The decline of production and the simultaneous decline of oil prices, along with the collapse of favoured trade relations with Eastern Europe resulted in huge trade deficits, with the government attempting to import machinery, grain and consumer goods to make up for local shortages.

As some prices were freed to be decided by market forces and others remained state controlled, massive price distortions occurred, resulting in an inability among many enterprises to obtain key resources, resulting in bottlenecks and further declines in production. As the state attempted on occasion to relieve these industries by providing artificially low prices for the goods, many enterprise directors and corrupt bureaucrats stole and then resold the resources at higher market prices. As enterprises began to declare bankruptcy in the face of internal economic chaos and international competition, and their workers became increasingly militant against reform, the state felt forced to bail them out, resulting in non-adherence even to some of the supposed ‘fundamental’ elements of the reform program. As scholar Walter D. Conner bitterly points out: “the old economy decayed, but was not replaced by any viable sort of new economy -what, in Gorbachev’s shifting and confused vision of reformed socialism, would have been a “managed” market economy.”


-From an essay I wrote. If you guys want the sources, just ask (the copy-paste didn't take the footnotes).
"The thing about capitalism is that it sounds awful on paper and is horrendous in practice. Communism sounds wonderful on paper and when it was put into practice it was done pretty well for what they had to work with." -MiG
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Defected to the U.S.S.R.: 16 Aug 2006, 17:30
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Post 31 Mar 2007, 15:06
Quote:
How is this relevant to the USSR? It never faced a debt crisis in the 1970s, never choosing to borrow heavily like much of the rest of the world, and subsequently not sucked in to paying Western banks when interest rates skyrocketted.

International context:
a. Oil crisis
b. Eurodollar markets undergo inflation -> cheap money on the international market

USSR:
a. Made huge profits as a main supply of cheap oil
b. Exchange of their profits in eurodollar markets with huge cheap loans


-Oil crisis was a political crisis, prices went down again => profits sank
-Wallstreet decided that the eurodollar markets needed a deflation cure, so Washington used the Volcker shock and Reaganomics. Intrest rates went through the roof, loans of the eurodollar markets began to be a huge slavery machinism throughout all western countries, USSR felt the same problems as the capitalist countries.
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Ideology transforms human beings into subjects, leading them to see themselves as self-determining agents when they are in fact shaped by ideological processes. L. Althusser
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Defected to the U.S.S.R.: 07 Oct 2004, 22:04
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Post 31 Mar 2007, 15:31
Quote:
b. Exchange of their profits in eurodollar markets with huge cheap loans


Quote:
-Wallstreet decided that the eurodollar markets needed a deflation cure, so Washington used the Volcker shock and Reaganomics. Intrest rates went through the roof, loans of the eurodollar markets began to be a huge slavery machinism throughout all western countries, USSR felt the same problems as the capitalist countries.


You've confused me. How was the USSR affected by interest rates on loans that it didn't take?
-Or are you saying that the USSR was drastically affected by the loss of these temporary profits, which it had somehow come to rely upon?

My view on the effect of financial crisis of the 1970s on the USSR is the same as Marshal Konev's. Here is a quote from him from another thread:

Quote:
For Western nations, the devastation of rising oil prices forced them to revamp and modernize their industries, whereas the oil crisis had a beneficial effect on the Soviet economy (as the USSR was an exporter), giving Brezhnev and central planners in the 1970s a degree of comfort.


In this line of argument, the USSR was given a false sense of economic security by the 1970s shocks, but its end certainly didn't mean that the economy, which wasn't primarily based on oil exports for survival, would suddenly decline and collapse with the end of high oil prices -it would merely continue to stagnate, and that's exactly what it did.
"The thing about capitalism is that it sounds awful on paper and is horrendous in practice. Communism sounds wonderful on paper and when it was put into practice it was done pretty well for what they had to work with." -MiG
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Defected to the U.S.S.R.: 16 Aug 2006, 17:30
Party Bureaucrat
Post 31 Mar 2007, 16:22
According to the book "The long twenthieth century" of G. Arrighi, USSR took loans in the eurodollar markets.
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Ideology transforms human beings into subjects, leading them to see themselves as self-determining agents when they are in fact shaped by ideological processes. L. Althusser
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Defected to the U.S.S.R.: 07 Oct 2004, 22:04
Ideology: Marxism-Leninism
Resident Soviet
Post 31 Mar 2007, 18:02
I wouldn't trust the source in this case Praetorian. Most sources I have consulted argue that the USSR whethered the crisis quite easily, though Eastern Europe didn't do as well:

Quote:
U.S.S.R. and Most of Eastern Europe Surmount Debt Crisis of Early 1980s
Business America, June 9, 1986 by Leyla Woods, Ronald Oechsler

Background

The Soviet Union and Eastern Europe were hard hit by deteriorating conditions in international economic and financial markets in the early 1980s. Such conditions included rising international interest rates, slack industrial country demand, and a sharp drop in commercial bank lending to financially strained sovereign borrowers. The impact of these forces varied widely between the U.S.S.R. and Eastern Europe and among individual East European nations, as did the individual country responses to these difficulties.

The Soviet Union, with its large resource base, low foreign debt, sizable international reserves, and favorable reputation on international credit markets, was relatively unaffected by the international debt crisis and the 1981-83 world recession. The Soviet Union's hard currency trade balance remained consistently positive during 1980-84. The U.S.S.R.'s foreign debt position also was extremely stable, reflecting the large proportion of long-term official loans in total Soviet hard currency debt, and the willingness of commercial creditors to renew maturing debt as payments came due.

Eastern Europe, in contrast, experienced a severe payments crisis in 1981-82. In the 1970s, the East European countries--like many Latin American less developed countries (LDCs)--had borrowed heavily to modernize their economies and to protect consumption and investment from the impact of rising raw material and energy costs. Unlike the U.S.S.R., most East European nations had relied mainly on commercial bank loans for their external credit needs, and thus they were extremely vulnerable to the withdrawal of Western bank credit from the region after 1980.

Initially, all the East European countries faced the same problem of meeting interest payments and repaying maturing debt with virtually no new credit inflows. To accomplish this, they had to generate hard currency trade surpluses through an increase in exports, a reduction in imports, or both. With the exception of the German Democratic Republic (and also Yugoslavia), the East European countries have been unable to increase their hard currency exports--because of recession and slow economic recovery in the West, debtrelated import restraints in LDCs, and the relatively poor quality and inadequate export marketing of East European products. Consequently, they have been forced to rely on import cuts in order to increase hard currency trade surpluses.

Poland had the highest debt burden and most severe payments problems in Eastern Europe. Poland's debt crisis was the result of an unsustainable pattern--dating back to the early 1970s--of increasing imports of raw materials, semi-fabricates, and capital goods without commensurate increases in hard currency exports.

Hard Currency Trade Performance

The Soviet Union ran a hard currency trade surplus throughout the 1980-84 period. From $1.7 billion in 1980, the U.S.S.R.'s hard currency trade surplus reached a record $4.7 billion in 1983 before declining to $4.4 billion in 1984. Soviet hard currency exports grew 14 percent--to $31.7 billion --between 1980 and 1984, leaving room for both the increase in the trade surplus and a 5 percent increase in hard currency imports.

Energy products (mostly crude oil and refined petroleum) are the U.S.S.R.'s largest hard currency earner, accounting for 59 percent of total Soviet hard currency exports in 1984. Since non-energy exports stagnated during 1980-84, the 25 percent increase in energy exports provided all of the growth in Soviet hard currency exports during this period.


-obviously this is not my most trusted source, but it conveys the same message as most others I have read in a professional manner.
"The thing about capitalism is that it sounds awful on paper and is horrendous in practice. Communism sounds wonderful on paper and when it was put into practice it was done pretty well for what they had to work with." -MiG
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Defected to the U.S.S.R.: 01 Mar 2007, 00:20
Pioneer
Post 31 Mar 2007, 21:22
The economy didn't so much fail as Western scientists and journalists want people to believe.Instead by 1975 the Soviet economy had out-grown its old methods of economic management and planning. But the remedy was poorly thought through, idiotic reforms under Gorbachev, which instead of fixing problems caused more problems, eventually spiraling out of control, and leading to the fall of the Soviet Union by Yeltsin. Even, then the economy did not go into negatives until 1991.
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Defected to the U.S.S.R.: 04 Oct 2012, 06:32
Pioneer
Post 27 Jan 2013, 00:14
soviet78 wrote:
How is this relevant to the USSR? :?: It never faced a debt crisis in the 1970s, never choosing to borrow heavily like much of the rest of the world, and subsequently not sucked in to paying Western banks when interest rates skyrocketted.

As for defense spending, you guys are all overexaggerating its causal role in the collapse of the economy. Issues like defense spending, the war in Afghanistan, the Chernobyl disaster and the Armenian earthquake could all have been dealt with in the context of a healthy, normally functioning Soviet economy (including the stagnating one of the early 1980s). It was only with Gorbachev's reforms that the state's capacity to deal with such issues began to deteriorate. If you want to use it as a cause for collapse, how do you guys account for the Soviet Union being capable of dealing with it for the 40 years before Perestroika? (And remember, spending levels by the early 1980s were growing very slowly compared to the 1970s).

The 1987 Law on State Enterprise would become the first large scale market-reform in the USSR’s post NEP history. Going into effect in 1988, the series of laws gave enterprises and local authorities more decision-making authority over production and input mix, the structure of wages and bonuses, the amount of investment, etc. The number of centrally distributed products was to be reduced from over 13,000 to a mere 618. Enterprises were expected to be financially self-sufficient, with all future capital costs to be financed by sales revenues. Bankruptcy subsequently became possible for inefficient producers. Enterprises also gained the right to import and export through the world economy without government involvement or interference. In accordance with the ideals of glasnost, enterprise directors were to be elected for five year terms by the workers in multi-candidate elections. In 1988 with the passing of the Law on Cooperatives, private businesses in the service, manufacturing and foreign-trade sectors was legalized.

Problems resulting from these initiatives, among others, included an ever-rising discrepancy in the goods to ruble ratio due to rising wages. With direct election and the possibility of removal by workers, managers lost their inherent authority, resulting in declining work discipline. Wages rose in agricultural production, particularly among producers in private and cooperative economic activity, resulting in ever-increasing procurement prices for the state. As the enterprises, newly freed from central authority attempted to reequip and renovate their factories on a mass scale, shortages in inputs thanks to disorganization and the breakdown of planning, along with the rising costs of inputs, resulted in an explosion in unfinished construction. Without the restraints of the market, nor the control of the state, no authority could effectively stop this activity. Investment spending continued to neglect the areas of consumer goods production, agriculture, and transport infrastructure, all of which socialist reformers had argued were key areas to improve upon. The direct impact of neglected transport infrastructure was the insufficient availability of inputs for production, with the inputs themselves often sitting in warehouses and their production stopped due to lack of movement. As for farming, increased prices for farm machinery and other inputs growing faster than productivity meant the state had to raise procurement prices in order to keep farmers afloat, which worked to strain further the already debtor state. The main issues of lack of processing, storage and marketing infrastructure which had caused so much waste under the old system remained undealt with. As a result of inflation and shortages, people spent less time working, and more time looking for goods, resulting in more absenteeism, and less overtime. As real incomes fell, farmers reduced production and/or sold it privately, resulting in food shortages.

As discussed by scholars Andrei Shleifer and Robert Vishny, regarding some of the key economic problems of the perestroika period caused by poorly thought out reforms:

“the combination of repressed inflation, which greatly distorted incentives, with partial liberalization, which completely undermined plan enforcement, led to a breakdown of traditional economic ties and coordination mechanisms in the Soviet economy... Repressed inflation diverted labour away from productive activities and into a search for goods, thus reducing effective labour input. Repressed inflation combined with productive freedom made it attractive for enterprises to hoard intermediate inputs, leading to declines in output and breakdowns in downstream production. Repressed inflation combined with the freedom to choose trading partners led firms to resell or barter their output to higher-paying customers, leaving traditional customers without supplies and so reducing production downstream.”

The decline of production and the simultaneous decline of oil prices, along with the collapse of favoured trade relations with Eastern Europe resulted in huge trade deficits, with the government attempting to import machinery, grain and consumer goods to make up for local shortages.

As some prices were freed to be decided by market forces and others remained state controlled, massive price distortions occurred, resulting in an inability among many enterprises to obtain key resources, resulting in bottlenecks and further declines in production. As the state attempted on occasion to relieve these industries by providing artificially low prices for the goods, many enterprise directors and corrupt bureaucrats stole and then resold the resources at higher market prices. As enterprises began to declare bankruptcy in the face of internal economic chaos and international competition, and their workers became increasingly militant against reform, the state felt forced to bail them out, resulting in non-adherence even to some of the supposed ‘fundamental’ elements of the reform program. As scholar Walter D. Conner bitterly points out: “the old economy decayed, but was not replaced by any viable sort of new economy -what, in Gorbachev’s shifting and confused vision of reformed socialism, would have been a “managed” market economy.”

-From an essay I wrote. If you guys want the sources, just ask (the copy-paste didn't take the footnotes).


Without high military spending in the 50's and 60's, the economy could have grown even faster during those periods. It doesn't make sense to spend 15%+ on the military when you are trying to catch up economically with another country. There was a lot of room for growth in the 50's and 60's because the Soviet Union had to rebuild, meaning they could spend large amounts on the military and still achieve significant growth levels. However, if they did not spend so much on the military, these growth levels could have been even more impressive. Just because high military spending didn't hurt you in the 50's and 60's does not mean that it won't hurt you in the future. People try to make too many assumptions off of too few data points, which is why so many people think central economic planning is "inefficient" just because the Soviet Union collapsed.

The other major problem with the Soviet economy during the "Era of Stagnation" was low productivity. They focused too much on full employment and stability rather than efficiency. This has nothing to do with inefficiency in state planning itself, however, like most people believe. Planning could have focused more on efficiency, but the SPECIFIC planning of the Soviet Union was to focus on social stability. High unemployment rates can be good if it is due to higher efficiency. Then, you just have to figure out a way to transfer the workload so that people have equal amounts of work time. If the Soviet Union did this, there would not have been an "Era of Stagnation," and they could have maintained very high growth levels.
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