REFORMS  

 

 


Perestroika Ė
Problems of Implementing
New Policies in an Old Economy

by Juan Angel, April 2001
 

 

 

On March 11 1985, Mikhail S. Gorbachev was elected the new general secretary of the Communist Party. He faced a stagnating economy, a well-established bureaucracy, and a population that did not have faith in their leaders. He needed to create new policies in order to reactivate the economy. In 1987, he introduced the perestroika (restructuring) in order to correct the inefficiencies that the country was facing. It encouraged private ownership of land, introduced new systems of quality control, and abolished hundreds of ministries and bureaucratic centers. Many people saw the perestroika as a threat leading to the elimination of the centrally planned economy created by Stalin. Additionally, the perestroika focused on efficiency as a driving force. The Perestroika tried to cope with each of the following problems in order to overcome the struggles that were created by an inefficient command economy:

Consumer Goods: Due to the Soviet industrial infrastructure, it was very difficult to produce and distribute more consumer goods. The problems were not only that Russian machinery was not efficient, but also the fact that the Russian government previously did not promote the consumer distribution network. Therefore, there were not enough stores, warehouses and other facilities where products could be sold to consumers. Gorbachev tried to create incentives for individuals to start their own businesses and allowed households to keep the profits made by the sale of goods.

Workers' Wages: In the past workers' wages increased faster than productivity. The government tried to correct this, but when they cut wages, workers' incentives decreased and this caused product quality to decline. They had to create a system of quality control in order to monitor the output created by the workers. This was very important because the industries started promoting quality instead of quantity.

Incentives for Managers: Gorbachev wanted to create incentives for both factory managers as well as peasants and farm managers. To do this they adjusted salaries to reflect the amount of responsibility involved in the job. In this way managers had higher incomes, giving them an incentive to work harder, thus creating an increase in the overall productivity. Another consequence of this policy was that workers became more competitive in order to reach managerial positions. The competition among workers led to higher levels of production and eliminated shirking. Foreign Trade Monopoly: Gorbachev allowed the ruble to be convertible to other currencies. When the plan was implemented there was a fear that the country was going to start having large trade deficits. Gorbachev dealt with this threat by promoting joint ventures in order to improve existing Russian technology, and he also imposed some restrictions on the import of goods.

Gosplan: One of Gorbachevís main objectives was to decrease the powers of the Gosplan and the ministries. However, this was very difficult to implement because the enterprise managers still relied on a centrally planned economy. Gorbachev tried to teach managers of enterprises how to choose their own output and forced companies to be autonomous.

The Failure of Perestroika Gorbachevís grand plan to revive the Soviet Union after two decades of stagnation was far from a success. Gorbachevís perestroika was originally a plan to motivate and discipline the work force in order to increase the countyís productivity. His failure began when he tried to restrict alcohol, leading to alcohol being sold in the black market and the creation of the Mafia. Before the Perestroika, all farmland was owned by the state, and Gorbachev began to lease this land under the new reforms. Although this led to some successful private enterprises, many struggling factories became bankrupt. Although these were some of the problems that led to the failure of the perestroika and the end of Gorbachevís leadership, the main cause of the failure was that its reforms came too late to salvage the ailing economy. For example, cutting state spending, especially military spending was a very promising, yet not sufficiently comprehensive, reform to revive the economy. Possibly, more radical changes were needed or these same, promising reforms needed to come at an earlier time.

Conclusion The perestroika was reforms proposed and implemented by Gorbachev that were meant to revive the economy and discipline the work force. The perestroika was very promising ideas with good intentions, but some scholars had argued that these policies would have worked much better if they had been implemented slowly or earlier. Many people attribute the fall of the Soviet Union to the perestroika not only because it distorted the established economy, but also because it took credibility away from a previously centrally planned system. Although the perestroika failed, it helped lead the way to the now existing free market economy.

References

  • Jones, Anthony and Moskoff, William. "Perestroika and the Economy: New Thinking in Soviet Economies." New York: M.E. Sharpe, Inc. 1989.

  • Aganbegyan, Abel. "The Economic Challenge of Perestroika." Bloomington: Indiana University Press. 1988.

  • Brittanica Online

  • http://historyorb.com

 

 

 

OK Economics was designed and it is maintained by Oldrich Kyn.
To send me a message, please use one of the following addresses:

okyn@bu.edu --- okyn@verizon.net

This website contains the following sections:

General  Economics:

http://econc10.bu.edu/GENEC/Default.htm

Economic Systems:  

http://econc10.bu.edu/economic_systems/economics_system_frame.htm

Money and Banking:

http://econc10.bu.edu/Ec341_money/ec341_frame.htm

Past students:

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

Czech Republic

http://econc10.bu.edu/Czech_rep/czech_rep.htm

Kyn’s Publications

http://econc10.bu.edu/okyn/OKpers/okyn_pub_frame.htm

 American education

http://econc10.bu.edu/DECAMEDU/Decline/decline.htm

free hit counters
Nutrisystem Diet Coupons