Perestroika and glasnost had unleashed winds of change that had affected every aspect of social, political and economical life in the Soviet Union and Eastern Europe. In the Soviet Union, these radical winds of change were mostly responsible for the failed coup of August 15 1991, which will be referred to in the following passages. However before the failure of these ingenious manifested reforms, there had been a series of changes that caused the transition to be relatively peaceful and smooth. The term Perestroika, which means free economical re-structuring, was coined by Mikhail Gorbachev in 1987. He stated: "Perestroika is a thorough renewal of every aspect of Soviet life...it is the fullest exposure of the humanist nature of our social system in its crucial aspect, economic, social, political and moral" (Gorbachev 27).
By 1985, Soviet economy became tremendously weakened. Growth had declined sharply and remained at a low level. The standard of living was very low while unemployment was rising dramatically. Military demand was likely to signify the need for an economical revitalization. The rapid U.S. arms build-up, formed by Ronald Reagan's administration, imposed serious challenges to the Soviet Union. Therefor, Soviet chief economists all favored the reforms. However they disagreed on the types of the reforms and on their radical nature. (Aslund 13).
This ideological divergence caused the economists to divide in to two groups. The first group represented those who disapproved radical changes, such as immediate liberalization of prices and privatization. While the second group demanded radical reforms and quick transformation to the free market economy. On one side there were the "Leftists" (conservative) academicians namely Janos Korniai, Abel Aganbegian and Dikran Khachaturian. On the other side there were well known "Rightists" namely Vadim Medvedev, Boris Kurashvili and Gavriil Popov, who conceptualized and wrote about comprehensive reforms before they were politically acceptable (Aslund 22).
In 1987, General Secretary Mikhail Gorbachev decided to take all the steps required in order to follow the radical reform path, which he termed Perestroika. Kurashvili, in his speech, called it revolution: "I would equate the word perestroika with revolution" (Aslund 23). But, this course was nether easy nor simple. Dikran Khachaturian, the editor in chief of VOPROSY EKONOMIKI, published an article (June 1987) in the traditional economic journal by stating: "This is a significant step towards a complex and comprehensive restructuring of the economy. The drama of the situation calls for extraordinary measures, which might lead us to deterioration" (Aganbegian 31). General Secretary Mikial Gorbachev introduced many important social-economical reforms. However, in this inquiry only two of the many major radical reforms are presented.
First surge, Gorbachev believed, was to accelerate the economical growth by increasing labor productivity and output, which would also need modernization of industries and rapid improvements in efficiency. By September 1987, Gorbachev announced that the national income had grown by about 3 percent. Where as calculations, later, indicated that a minimum of 4 percent was needed for an effective sufficient annual growth (Aganbegian 120). The second reform was concentrated on inflation. The rate of investment appeared to be rising, but experts like Delez Palterovich and Vladimir Faltsman, from the Central Economic-Mathematical Institute (TsEMI), argued that the "hidden" inflation in equipment incorporated in investment was about 8 percent a year from 1979 to 1985, and their estimates were conservative. They believed that there was a significant "hidden" inflation also in construction, where most of the real investment might have occurred. Therefor, because of the long service life of equipment, the productivity might decrease. Thus, the rapid cost of production will increase, which would increase the prices of the products in sales (Aganbegian 128).
In order to overcome these problems Prime Minister Ryzhkov suggested scientific-technical progress to replace old equipment. Followed by this proposal an increase in machinery, particularly computers, electronic components and robotization, was promoted and subsidized by the Soviet government. Ryzhkov stated: "Machine building will reconstruct and accelerate our national economy" (Aganbegian 129). Production was supposed to increase by 43 percent, from 1985 to 1990, and investment in privatized "machine-building" industry was to be no less than 80 percent. However, these radical reforms were hardly all implemented and even more, they left a negative effect in the long-run. Government subsidies increased the wages, which later had a significant impact on sky rocketing prices and on hyper-inflation (Aslund 62).
The reasons for the failure of the August 1991 coup in the Soviet Union was due to the above disastrous state of the Soviet economy. The gross national product of the Soviet Union declined by 10 percent in 1990, and by 15 percent in the first half of 1991. Similarly in 1990 the inflation rate increased by 30 percent and a year later it reached to more than 60 percent, while the shortages of consumer goods continued to be wide spread through out the Soviet Union (Shama 53). On over all terms Gorbachev was the most radical reformist during the Soviet Union history. He pushed his reforms energetically, however he did not control their designs. The Soviet Union was actually governed by a truly collective leadership. Therefor, it would not be accurate to consider Gorbachev the only person responsible for all the matters that caused the Eastern block to collapse.
Aganbegian Abel: PERAGRAMMA KORENNO PERESTROIKI. EKO, November 1990. (Russian & Armenian)
Aslund Anders : GORBACHEV'S STRUGGLE FOR ECONOMIC REFORMS. Cornell University Press, 1991.
Gorbachev Mikhail: PERESTROIKA: NEW THINKING FOR OUR COUNTRY AND THE WORLD. Harper & Row, New York, 1087. (English & Russian)
Shama Avraham : PERESTROIKA. MIT Press, 1992.