A great article by Yegor Gaidar, once acting prime minister of Russia, on why the Soviet Union fell apart:

http://www.aei.org/issue/25991

Gaidar is writing largely to combat popular folklore in Russia right now, that reformers somehow sabotaged a system that was working fine.  But it’s equally a rebuke to the folklore in America that Ronald Reagan somehow did it.  The collapse had nothing to do with the reformers or Reagan.

Very briefly, the Soviet system was doomed with the collectivization of agriculture back in the 1930s, at Stalin’s insistence.  Collectivization greatly reduced grain production and destroyed any capacity for increased productivity.  Yet the cities kept growing, increasing the need for grain.  In the ’50s a program of utilizing marginal land was begun, but this only solved the problem temporarily. 

In the ’70s the system got another reprieve, via the discovery of oil.  But the price of a resource-based economy is instability and backwardness.  When oil prices collapsed in the mid -1980s, the USSR suddenly faced a $20 billion per year shortfall in revenues.  Several difficult solutions were available, but the leadership decided instead to just borrow the money from foreign banks. 

And this in turn tied the Soviets’ hands when the satellites and the Baltics started rebelling.  In 1991 the Soviets were negotiating a desperatedly needed $100 billion loan; it was understood that the money would not be available if (say) the USSR repressed the Baltics by force.

The coup in August 1991 failed largely because it was soon realized that the plotters, though able to push Gorbachev out, had no plan of their own.  They could not produce grain for the cities, or reestablish military control over the satellites, or secure that loan.  Stalinism couldn’t be reimposed by a wish.

On August 22, 1991, the story of the Soviet Union came to an end. A state that does not control its borders or military forces and has no revenue simply cannot exist. The document which effectively concluded the history of the Soviet Union was a letter from the Vneshekonombank in November 1991 to the Soviet leadership, informing them that the Soviet state had not a cent in its coffers.

Oil prices are up again, which is providing a boost for the Medvedev/Putin regime, which is smart enough to save some of the revenues… but only enough to provide a few years’ buffer in case of emergency.

Perhaps the greatest irony here is that the greatest avowedly Marxist state was undone by pure economics– as Gaidar points out, by the same factors that ground down Spain from the most powerful country in Europe to one of the weakest.

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