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The impact of neoliberal offensive of the Western capital on
launching perestroika in the former Soviet Union




Chapter 1
Why perestroika?

Chapter 2
The place of the Soviet economy in the world capitalist economy

Chapter 3
The neoliberal offensive




The disintegration of the Soviet Union is one of the most important events in the 20th century, which had a great impact on the relations of power in the world. The reform programme, which is associated with the name of Mikhail Gorbachev, although it found little space to be implemented, played a significant role in the process of the disintegration of the former Soviet Union. It could be argued that the perestroika represented the beginning of the end for the Soviet Union. Although it was intended to save the Soviet Union from collapse, the reform programme of the Gorbachev fraction hastened the process of the disintegration and the collapse of a one of the most powerful states in the world.

The economic, social and political system of the Soviet Union, and the other so-called socialist countries for that matter, has always been interesting topics for me. That is why, among other things, I have chosen the impact of the worldwide neoliberal offensive of the Western capital on the decision to launch a far-reaching reform in the Soviet Union as the subject of my paper.

As is known there have been different views as regards the class nature of the Soviet society in general and the Soviet state in particular. I consider the Soviet economy, at least since the middle of the 1960s, as state capitalism and the Soviet state as state capitalist, which is dominated by the bureaucratic class of the party and state officials (the bureaucracy as the collective capitalist). In my opinion the crisis of the Soviet Union was not the crisis of scientific or marxist-leninist socialism, but of the crisis of (bureaucratic) state capitalism. (1)

December 20, 1997


It goes without saying that the disintegration of the former Soviet Union has been one of the most important events in the 20th century and in the history of capitalist world. Perestroika (restructuring) and glasnost (openness) played very important role in the process of disintegration of the Soviet Union. I restrict my subject to studying the internal economic situation of the Soviet Union prior to launching perestroika and the impact of the worldwide neoliberal offensive of the Western capital, which, since the middle of the 1970s, restructured itself in the face of the crisis of the Fordist model of capital accumulation, on launching perestroika.

I think that for a proper understanding of the present international relations of power it is necessary to understand why the Soviet Union had to implement a far-reaching reform programme. For a good understanding of the impact of the neoliberal offensive on launching perestroika I find it necessary to treat the question of internal economic factors which forced the rulers (2) in the Soviet Union to launch it. In the first chapter I tried to present a relative satisfactory picture of the Soviet economy prior to launching perestroika in order to provide some background information. I do not intend to go into all the possible causes of the economic problems of the Soviet Union. Nor do I claim that I provide a complete picture regarding the motives behind launching perestroika.

In the second chapter I go into the question of the place of the Soviet economy in the capitalist world economy.

I am of the opinion that the Soviet economy and the attempts to reform it should be placed in the international context. Therefore, in the third chapter, I deal with the questions such as, the crisis of capitalist world economy, the restructuring of the Western capital (neoliberal restructuring), the so-called new ‘Cold War’, the arms race etc. and their impact on the Soviet economy.

On the basis of preceding issues I formulate the following research question: What was the impact of neoliberal offensive of the Western capital on launching perestroika in the former Soviet Union?

In Conclusion I present a short summary of my findings and I answer my research question.

Chapter 1
Why perestroika?

In order to understand why the rulers in the former Soviet Union were forced to initiate a far-reaching reform programme, an analysis of the economic situation of the USSR is necessary. Many scholars and experts agree that the late 1970s and the decade of the 1980s represent the period of stagnation in the Soviet Union. Hill speaks of ‘the stagnant society of the late Brezhnev years’ (1990: 230). According to Aganbegyan the Soviet Union was in the late 1970s and the begin of the 1980s in the situation of stagnation. The Soviet Union was on the eve of a crisis (1989: 182). Frank notes that ‘(...) the decade of the 1980s, indeed beginning in the mid 1970s, came to be called ‘the period of stagnation’ in the Soviet Union (...)’ (1993: 7). Gorbachev called the period of the 1981-5 as the ‘pre-crisis situation’ and ‘years of stagnation’ (in Nove 1990: 372).

According to Hill the gross expansion rate of 10-15 per cent a year recorded in the 1950s had been replaced by near-stagnation by 1981, after a steady decline: about 5 per cent in the 1960s, 3.8 per cent in the early 1970s, falling to 2.8 per cent and 1.2 per cent in the first two years of the 1980s (1990: 172). Hill points out that ‘the objective problems’ of the Soviet economy include
‘(...) the slowdown in the expansion of the labour supply, coupled with major (and growing) regional imbalances in its distribution; the exhaustion of readily accessible resources of minerals and energy, necessitating a costly and technically difficult switch to Siberia for supplies (...)’ (1990: 188).
Gorbachev notes that ‘in the last fifteen years the national income growth rates had declined by more than a half and by the beginning of the eighties had fallen to a level close to economic stagnation’. (1987: 19). He speaks of ‘declining rates of growth and economic stagnation’ (1987: 20). Gorbachev compares the economic situation of the Soviet Union with the advanced capitalist countries:
‘(...) A country that was once quickly closing on the world’s advanced nations began to lose one position after another. Moreover, the gap in the efficiency of production, quality of products, scientific and technological development, the production of advanced technology and the use of advanced techniques began to widen, and not to our advantage.’ (1987: 19).
According to Dyker ‘by the late 1970s the Soviet growth rate was down to 3 per cent- to under 2 per cent if we accept CIA recalculations in GNP terms’ (1987: 14). The agricultural output in 1982 was just about the same as it had been in 1973 (1987: 15). ‘(...) While agricultural investment was maintained at extremely high levels - more than 20 per cent of total investment throughout the 1970s and early 1980s - output and productivity stagnated (.)’ (1987: 95). Under Brezhnev agriculture became a net burden on the rest of the economy (Nove 1990: 362-3). ‘This sector, long perceived as the Achilles’ heel of the Soviet economy, was recently still identified as ‘a most critical problem for the Soviet system and its leaders’ [Robert W. Campell, in Byrnes, 1983, p.98] (...)’ (Hill 1990: 173). The importation of massive quantities of grain took place. ‘ (...) By the third quarter of 1984 Western food exports to the Soviet Union, coming mainly from the USA, were once again on the increase (...) (Dyker 1987: 15). On the main significance of the slow-down in Soviet growth Dyker writes:
‘Specific sectoral weaknesses apart, the main significance of the slow-down in Soviet growth rates in the late 1970s and 1980s lies in the fact that the USSR thereby stopped catching up with the industrial West, at a point where the gap between the two in terms of GNP and GNP per capita was still very large. At the present time Soviet GNP is probably under 60 per cent of US (...)’ (1987: 15).
As regards maintaining a balance between consumer demands, military expenditures and the investment required to sustain them, Paul Kennedy argues that if the great powers fail to do that it will cause a relative decline in each (in Gill 1991: 59). According to Gill, ‘in the 1980s this problem afflicted not only the united States but also the Soviet Union, where Gorbachev’s perestroika reflected a similar crisis of the Soviet political economy, a potential crisis of hegemony for the Soviet empire (...)’ (Gill 1991: 59).

Many scholars and experts argue that military expenditures have been a great burden on the Soviet economy. Under the circumstances it would not be possible to maintain the above-mentioned balance between consumer demands, military expenditures and the investment required to sustain them. As Nove notes,
‘The efforts to achieve parity in the military field have added to the strain on resources. The military sector absorbs a large segment of the output of the Soviet machinery, engineering and electronic industries; just how large we cannot precisely know owing to lack of published figures.’ (1990: 374).
Dyker argues that the very fact that the Soviet economy is overwhelmingly predominant within the Warsaw Pact area ‘helps to explain why the Soviet military posture has put such a strain on the Soviet economy’. He adds that
‘(...) the Soviet Union still turns out to be spending a larger proportion of its National Income on defence than any other industrial country (...) thus the defence burden puts the Soviet economy under severe pressure, and this pressure has been the greater in that the return on investment, the other main non-consumption element in National Income, has fallen sharply over the last decade or so (...)’ (1987: 16).
Nove notes that the period of 1966-70 ‘was a period of a particularly rapid rise in military hardware production’ (1990; 369). In Frank’s view the Soviet Union was trying to compensate for its comparative economic and political/ideological weakness through increasing military strength (in Amin et al. 1982: 144).

In the period of the 1981-5 ‘the value of East-West trade fell sharply in absolute terms, and marginally as a proportion of total world trade’ (Dyker 1987: 14). ‘(...) With the Western world starting to move into recession in 1980, and with the fall in oil prices from 1982, any hope for substantial increases in Comecon exports to the West were dashed (...)’ (1987: 13). In his criticism of Fred Halliday Frank points out that
‘ (...) Halliday (...) correctly notes that the rise in the price of oil gave the USSR a windfall profit. However, he conveniently disregards that the same imposed an unexpected stormy cost for oil importing countries in Eastern Europe and that the renewed decline in oil - and gold- prices since 1981 deprived the Soviet Union of the much needed foreign exchange. It was generated by the oil and gold exports, which were over 90 percent of its hard currency earners in this market, which according to Halliday did not intervene in Soviet economy or society!’ (1993: 11).
Van der Pijl and Van Zon note that
‘The growth of East-West trade in this period was primarily brought about by rising energy prices and by Western credit. In the mid-1980s, about 80 percent of Soviet exports to the capitalist countries consisted of oil and natural gas (...) But, when after 1985, oil prices fell, the Soviet Union lost about 40 percent of its export earnings in convertible currencies (...)’ (The New Soviet Concept of International Relations and the Transition to Socialism: 22)
Why were export earnings in convertible currencies very important for the Soviet Union? Let us consider the state of technology and productivity of the Soviet Union before answering this question. By the mid-’seventies it became obvious that the economic and political rulers of the Soviet Union were unable to continue with extensive economic development because of, inter alia, shortages of labour in general. ‘(...) By the 1980s the country’s reserves were exhausted. Gorbachev and his associates cannot bring peasants from the farms to the factories in large numbers as in the past; there is no pool of underemployed rural workers (...)’ (M. Mandelbaum 1988: 371). Hill argues that
‘With the slowdown in the rate of population expansion over the past generation, the traditional methods of increasing output by expanding the industrial workforce cannot be relied on, so that already at the beginning of the 1980s Western experts spoke of the Soviet economy as facing a period of stringency (...)’ (1990: 172-3).
But the rulers of the Soviet Union were also unable to pass to intensive development based on technological progress because of technological backwardness in comparison with the advanced industrialized Western economies, including Japan. ‘In an era when the pace of industrial innovation -of both products and techniques- is being set by the advanced capitalist countries, the Soviet Union is manifestly not managing to maintain that pace, let alone overtake its rivals (...)’ (Hill 1990: 172). In the period of the 1981-5 there was ‘a substantial decline in the rate of growth of civilian machinery and equipment, and in investment (...) Obsolete machinery in urgent need of replacement continued in use, necessitating large expenditures on repairs. Technological progress slowed, imbalances multiplied (...)’ (Nove 1990: 372). While Western capitalism was restructuring itself, the Soviet economy was unable to maintain its technological level, let alone to renew it, except the military and space research component of industry. ‘In many ways, the military and space research component of Soviet industrial production has been something of an exception, at least as far as the quality of production is concerned (...)’ (Hill 1990: 168). Gorbachev writes:
‘(...) We spent, in fact we are still spending, far more on raw materials, energy and other resources per unit of output than other developed nations. Our country’s wealth in terms of natural and manpower resources has spoilt, one may even say corrupted, us. That, in fact, is chiefly the reason why it was possible for our economy to develop extensively for decades.
Accustomed to giving priority to quantitative growth in production, we tried to check the falling rates of growth, but did so mainly by continually increasing expenditures: we built up the fuel and energy industries and increased the use of natural resources in production.
As time went on, material resources became harder to get and more expensive. On the other hand, the extensive methods of fixed capital expansion resulted in an artificial shortage of manpower (...)
So the inertia of extensive economic development was leading to an economic deadlock and stagnation.
The economy was increasingly squeezed financially. The sale of large quantities of oil and other fuel and energy resources and raw materials on the world market did not help. It only aggravated the situation. Currency earnings thus made were predominantly used for tackling problems of the moment rather than on economic modernization or on catching up technologically.’ (1987: 19-20).
Now, we can answer the above question: Export earnings in convertible currencies were very important for the Soviet Union for several, but closely related reasons. The Soviet Union was not able to renew its technology by herself. It had to buy advanced technology on the world market, which required hard currency. Without advanced technology it would not be possible to raise labour productivity, which was essential for the transformation from extensive economic development to intensive development. In other words the Soviet Union was substantially dependent on transfer of technology from advanced Western capitalist economies. The above citation from Gorbachev confirms this. Gorbachev hopes for economic modernization and technological catching up with the advanced industrial economies of the West with the help of Western technology. As Dyker notes ‘(...) Soviet imports of machinery from the West fell sharply in the late 1970s (...)’ (1987: 13-4). According to Aganbegyan, because the Soviet economy was closed to the outside world and there was no co-operation, it inevitable led to backwardness in technique and quality (1989: 284).

Mandelbaum maintains that
‘Gorbachev has encouraged Western economic forms because he and other members of the Soviet establishment have become convinced that they cannot have Western hardware without Western software. Sustained economic growth and the manufacture of the most sophisticated industrial products, they have come to believe, are not possible in the Soviet Union without changes in the existing patterns of economic organization. (...)’ (1988: 371).
‘The Soviet Union is faced with the need to shift to an intensive model of growth, which involves making more efficient use of the materials and labor that are available (...)’ (Mandelbaum 1988: 371). Transfer of advanced technology was urgently needed for transition from extensive accumulation to intensive accumulation. In other words for transition from generating absolute surplus value to generating relative surplus value. In discussing the bureaucratic organization of the economies of the regimes in Eastern Europe and the Soviet Union Frank writes:
‘(...) Their bureaucratic organization was instrumental in promoting extensive economic development by mobilizing the full employment of their resources (and generating absolute surplus value?). But this same bureaucratic organization seems to militate against the passage to intensive development based on technological progress (and relative surplus value?), whose implementation is discouraged by bureaucratic rules (...)’ (In Amin et al. 1982: 150-1).
The question of ‘scientific and technological revolution’ had always been one of the subject matter in the Soviet Union. Some argue that it was not the quality of scientific research that caused weakness in the Soviet economy, but the rate of diffusion of new technology or the introduction of new techniques into the economy. ‘(...) The Birmingham studies suggest, however, that the critical weakness of the Soviet economy does not lie so much in the quality of scientific research as in the rate of diffusion of new technology (...)’ (Alan H. Smith in Dyker 1987: 160). According to Smith the barriers to rapid diffusion of technology become the major constraint to growth (in Dyker 1987: 160).

Without proper consideration of the function and place of the second (parallel, underground, unofficial, informal, shadow, black etc.) economy, the problems of Soviet economy could not be discussed. An underground economy was a part of the economy of the USSR. It could also be seen as a part of the private economic sector. Since the mid-’seventies ‘the second economy in the supply of consumption goods and services has been increasing in size [O’Hearn, 1980] ‘ (Dyker 1987: 17). The second economy of the Soviet Union was a strong one. On ‘Gorbachev’s plans to bring the second economy out into the open’ Dyker writes:
‘Finally, Gorbachev’s plans to bring the second economy out into the open may backfire. The sharp cutback in state production of alcohol must involve some danger that the moonshine industry, already in a fairly healthy state, will start to develop with renewed vigour. The general emphasis on decentralised investment will certainly produce a lot of pressures for informal procurement - informal wholesale trade in the means of production in fact - which might well outrun cautious steps in the direction of legalising the shabashnik. We could end up back in the situation of the early 1970s, with the pushers destabilising central priorities and the apparatchiki seizing the opportunity to dig their heels in on all sorts of issues (...)’ (1987: 210).
Some believe that the ‘second economy’ had been a great burden on the official or controlled’ economy of the Soviet Union. It was, among other things, the question of corruption. That is why ‘once Andropov himself was in Brezhnev’s post he carried through the exemplary dismissal of a number of ministers charged with protecting or even actually running hugely profitable underground manufactures and commercial concerns.’ (Hosking 1990: 449-50). Others conceive the second economy as complementary to the formal economy. Stanislav Menshikov thinks that the informal ‘shadow’ economy importantly complements the formal economy in the Soviet Union (in Frank 1993: 15). As Hill notes ‘Soviet citizens have devised a host of ways of compensating for the inadequacy of the official economy to cope’ (1990: 184). Mervyn Matthews points out that there are devious ways for compensating ‘deserving’ members of the ‘elite’ (in Hill 1990: 184). Hill draws attention to flourishing ‘parallel’ markets of varying degree of legitimacy and legality and concludes:
‘Whatever the reasons for these elements of economic activity that are not authorized by the plan, they are prima-facie evidence that the attempt to plan the economy has fallen down in practice. By definition, the scale of such illegal activity cannot be established with certainty, but it is evidently substantial.’ (1990: 187).
Hosking points out that the pressure for serious change was mounting, not only inside the USSR itself, but also in its dependencies. Particularly the crises in Poland and in Afghanistan seemed insoluble without far-reaching change inside the heartland of Soviet power (1990: 450).

Under these circumstances Gorbachev maintains that perestroika became an urgent necessity. He argues that, especially in the second half of the seventies, the Soviet Union began to lose momentum, economic failures became more frequent, difficulties began to accumulate, and unresolved problems to multiply and continues
‘(...) Elements of what we call stagnation and other phenomena alien to socialism began to appear in the life of society. A kind of ‘braking mechanism’ affecting social and economic development formed. And all this happened at a time when scientific and technological revolution opened up new prospects for economic and social progress.’ (1987: 19).
Gorbachev justifies perestroika by saying that ‘any delay in beginning perestroika could have led to an exacerbated internal situation in the near future, which (.) would have been fraught with serious social, economic and political crises’ (1987: 17). He defines perestroika as a ‘revolution from above’ and maintains that ‘ (...) There is no reasonable alternative to a dynamic, revolutionary perestroika. Its alternative is continued stagnation. Upon the success of perestroika depends the future of socialism and the future of peace. The stakes are too high (...)’ (1987: 58).

Chapter 2
The place of the Soviet economy in the capitalist world economy

There are differing views regarding the place of the Soviet economy in relation to the world capitalist economy. Some argue that the Soviet economy should be placed in the context of the world or international division of labour. They maintain that whatever happens in the capitalist world economy has its impact on the Soviet economy. Others think that the Soviet economy was isolated from the world capitalist economy and, therefore, the world market did not intervene in the Soviet economy. Some argue that because of the isolation of the Soviet economy from the world economy the economic problems of the Soviet Union became acute, while others maintain that because the Soviet economy was a part of the world economy her economic problems became worst.

Frank maintains that ‘the socialist economies remain or increasingly reappear as an integral part’ of the world market (in Amin et al. 1982: 147). He criticise the idea of ‘two separate world markets’:
‘The economically widespread and politically deepgoing effects of the Western capitalist economic crisis on the socialist countries of the East lays to rest the false claim that there are two separate world markets and political systems, which was propounded by Stalin and is still accepted by some people in the East and the West. Not only is there only one -capitalist- world market, but the repercussions of the Western economic crisis in the East suggest that the same market law of value that underlines the economy of the West also extends into and operates within the socialist East, despite its partial abrogation through ‘socialist planning.’ (...)’ (In Amin et al. 1982: 146-7).
Frank points out that ‘ (...) the serious problems faced by the Soviet economy (...) were vastly aggravated by the pressures from the world economy of which it was a part.’ (Frank 1993: 13). On the role of the Eastern European economies as regards the link between the world economy and the Soviet economy Frank writes:
‘The Soviet economy was supposedly more isolated and independent than the East European ones. However, the Soviet economy also was integrated in the world economy through the East European ones on which it was dependent for industrial goods, as well as being directly linked into the world economy. Therefore, even in the Soviet Union domestic economic organization and policy were not the only or even the main reasons for its economic failure (.)’ (1993: 10).
Frank maintains that the Soviet Union, as well as the East European Newly Industrializing Countries, pursued export economic strategies of promotion but only with less success in comparison with other countries that followed the same strategy. He notes
‘ (...) The deepening economic crisis in the economies of Eastern Europe also affected the Soviet Union. It was dependent on them for imports of essential manufactures from Eastern Europe that they produced with technology, which they had to but increasingly could not import in turn from Western Europe.’ (1993: 11)
That is why he emphasizes, inter alia, that ‘(...) Halliday and many others could not be more mistaken in claiming that the [world] market did not intervene in Soviet economy or society (...)’ (1993: 13).

Regarding the post-1985 changes in the Soviet Union, Fred Halliday argues that ‘(...) it was a failure to compete internationally that, on top of the internal crisis, led to the post-1985 changes in the U.S.S.R.’ (Halliday in Frank 1993: 11). But, at the same time, he downplays the role of the ‘interstate competition’ and the role of market intervention in the collapse of the regimes in Eastern Europe and the Soviet Union: ‘(...) this interstate competition, comprehensive as it was, is not sufficient to explain how, why, and when the communist system collapsed’ (in Frank: 11). Halliday concludes that ‘it was not the ‘market,’ in any direct sense, of intervention within these societies and economies that contributed to their demise.’ (In Frank: 11).

Agenbegyan is among the ones who maintain that the Soviet economy was an isolated or substantially isolated economy. According to him the economy of the Soviet Union was in many respects isolated from the world economy:
‘De economie van ons land is in vele opzichten een gesloten economie in die zin dat economische betrekkingen met het buitenland hier een veel minder belangrijke rol spelen dan in andere landen. Het aandeel van de Sovjet-Unie op de wereldmarkt is minstens vijf maal zo laag als het aandeel dat ons land heeft in de industriële produktie van de wereld. Voorzover ons land deel heeft aan de wereldmarkt, betreft het voornamelijk de export van energie en grondstoffen en de verwerving daarvoor in de plaats van machines en installaties voor de levensmiddelenindustrie en de produktie van metalen (...)’ (1989: 283).
‘We zijn ons land (...) gaan zien als een integraal onderdeel van de wereld en onze economie als een onderdeel van de wereldeconomie. Analyse van de situatie leerde ons dat onze plaats op de wereldmarkt in geen enkele verhouding stond tot de werkelijke rol van de Sovjet-Unie in de wereld (...)’ (1989: 287).
Aganbegyan points out that perestroika coincided with a substantial decline in the prices of oil, other fuels, raw materials and goods, which form chief ingredient of the Soviet-export (1989: Woord vooraf).

Leonid Brezhnev emphasizes the impact of the crisis in the West on the economic situation in ‘the socialist world’: ‘ Because of the broad economic links between capitalist and socialist countries, the ill effects of the current crisis in the West have also had an impact on the socialist world.’ (In Frank in Amin et al.: 146). That is why Tudor Zhikov says that ‘It may be hoped that the crisis in the West may come to a rapid end.’ (In Frank in Amin et al. : 146).

The volume of trade could serve as a very good and accurate indicator of the degree of participation of a country in the capitalist world economy. It is also an indicator of dependency on the world market. The position of the Soviet economy in the world economy cannot be discussed without proper consideration of foreign trade. As Nove notes
‘A feature of the Brezhnev period was a substantial expansion of Soviet foreign trade, particularly with the capitalist world. This was facilitated by an improved political atmosphere (‘detente’), which encouraged Western firms and banks to grant long-term credits on a large scale, and, from 1973, also by the rise in prices of oil (by far the largest Soviet export to the West) and some other commodities, as well as of gold. Soviet purchases of Western (and Japanese) technology increased very sharply, and there were also large purchases of grain (...)’ (1990: 375-6).
Kees van der pijl and Hans van Zon too do not seem agree with the idea that ‘ following World War Two, two world markets had come into existence’, namely ‘capitalism and a ‘market’ of the planned economies striving for self-sufficiency.’ They note that ‘(...) Trade with the West gradually became more important as the CMEA member countries failed to realise reforms aimed at modernising their economies and solving specialisation problems among themselves (...)’ (The New Soviet Concept of International Relations and the Transition to Socialism: 22). They point out that ‘the growth of East-West trade’ from the mid-1970s till the mid-1980s ‘was primarily brought about by rising energy prices and by Western credit.’ They add: ‘(...) As a share of world trade, East-West trade began to stagnate since the mid-’seventies and to decline in the first years of the next decade (...) (Ibid, 22). According to Van der Pijl en Van Zon, by 1985 the economies of Eastern Europe and the Soviet Union were marginalized from the world economy. They speak about the reinsertion of the Soviet economy into the capitalist world economy:
‘The Gorbachev policy is therefore informed by the quest for a reinsertion of the Soviet economy into the world economy, as the crisis from which the new leadership emerged not only was a domestic crisis of bureaucratisation and corruption (now called ‘the period of stagnation’), but also a crisis of Soviet and CMEA international economic relations, partly caused by their marginalisation from the world economy (...)
Although it remains to be seen whether the reinsertion into the capitalist world economy will be able to move beyond further indebtedness, we think it marks a momentous change in the thinking on the relationship between plan and market, capitalism and socialism. In sharp contrast to the idea of a ‘second world market’ - which anyway was a largely illusory phenomenon - planning is now again seen as a development dialectically related to the socialisation of labour on a world scale (...)’ (Ibid, 22-3).
It becomes obvious that there is an inseparable relationship between the crisis of the capitalist world economy as a whole and the crisis of the Soviet economy. It could be added to this that the crisis of capitalist world economy in the second half of the 1970s and in the first half of the 1980s helped to prepare the ground for perestroika. As Frank puts it
‘The world economic crisis spelled the doom of the ‘socialist’ economies, much more than their ‘socialist planning’ ‘command economy,’ which is now almost universally blamed for the same. (...) the ‘second world’ economies of the Soviet Union and Eastern Europe were unable to bear the pace of accelerated competition in the world economy during this period of crisis. Like every previous one, this economic crisis forces one and all to restructure economically and to realign politically. (...)’ (Frank 1993: 7).

Chapter 3
The neoliberal offensive

Without studying the neoliberal restructuring of the Western capital and the neoliberal offensive, the motives behind launching perestroika could not properly be understood and the research question of this paper could not be answered. The economic crisis, which began in the second half of the 1970s, forced capitalism in the West to restructure. It was a neoliberal restructuring or, what Kees van der Pijl called, ‘a neo-liberal counterrevolution’ (1997: 22). The so-called new right politically represented economic neoliberalism. It is widely accepted that from the late 1970s onward the world witnessed the rise of economic neoliberalism and political new right particularly in English speaking countries. As Cox points out
‘(...) The United States and Britain generally espoused the ‘pure’ concept of neoliberalism: primacy to the world market and acceptance of international interdependence with a minimum of direct state involvement in industrial decisions and a restricting of state action to the use of macro-economic instruments of fiscal and monetary policy (...)’ (1987: 223).
Van der Pijl notes that ‘ (...) by 1978-79, both in the United States and Britain a political orientation emerged committed to a return to full-fledged liberalism (...) Concretely, this neoliberal concept envisaged removing all those regulative structures which impeded the free movement of capital (...)’ (1993: 7). According to Van der Pijl ‘the driving forces behind the neoliberal offensive against corporate liberalism were to be found among (...) arms industries suffering from budgetary constraints of corporate liberalism in crisis (...)’ (1993: 7-8). The economic crisis of the 1970s and early 1980s forced the Western capital from the Fordist pattern of accumulation to ‘the restructuring of capital towards an accumulation regime centering on new core technologies’ (Van der Pijl 1997: 23). Gill points out that the ‘adjustment towards neo-liberalism involved a movement away from the Fordist pattern of accumulation in many of the major capitalist states. There was also a shift away from the older forms of mass industrial employment, and towards more efficient, high-tech and capital-intensive industrial production and towards services. (...)’ (1991: 98). Regarding the restructuring of the Western capital Van der Pijl observes:
‘(...) It was clear that the restructuring of capital itself, from a regionally concentrated Atlantic setting to a world-wide deployment, and coinciding with a technical restructuring that rearticulated different modes of accumulation into a new regime centring on high-tech production and communication, required an adjustment of particular regulatory instances. (...) (1997: 39).
The ‘moment of regulation’ which expressed itself in the drive for developing codes of conduct for multinational corporations in the early 1970s marked the intersection of several lines of development in contemporary capitalism. One was the process of restructuring of capital from an Atlantic pattern characterized by a Fordist regime of accumulation to a global one centred on production organized around new core technologies (...)’ (1997: 41).
What was the impact of the rise of neoliberalism on international relations? Who benefited from the restructuring and who paid for it? What did it mean regarding the policies of the Western capital with regard to the Soviet Union? Frank maintains that ‘the costs of the crisis and especially of the 1979-82 recession were shifted onto the backs of those who could least afford their burden and least defend themselves in the West, and especially in the South and East -- of the world economy! The monetary and fiscal policies and debt service were the instruments, Desai (1992) pointed out (...)’ (1993: 12). He adds that ‘(...) it was this same world monetary and fiscal policy that pushed Latin America, Africa, Eastern Europe and the Soviet Union into an economic depression, which is already more severe than that of the 1930s (...)’ (1993: 13). Meghad Desai points out that ‘capitalism in its successful restructuring passed on the costs of this restructuring to the unemployed and the welfare-dependent at home, to the Third World poor, and lastly to the East Europeans. It was done through the instrumentality of monetary and fiscal policy via interest rates.... Socialism in Eastern Europe was caught by its inability to produce sufficient surplus to be able to service its debts.’ (In Frank 1993: 21). Frank criticizes Desai with not pursuing ‘his own and world economic logic to observe that the same Western monetary and fiscal policy was also instrumental in bankrupting the Soviet Union, which was also unable to compete. (.)’ (1993: 21).

Van der Pijl observes that because of the internal and international factors, such as militancy of the working class and the youth movement in the developed capitalism in interaction with the revolutionary forms of de-colonization in Vietnam and Africa; campaign for a New International Economic Order which was strengthened by the rising oil prices; strengthening of the positions of the cadre class and the social democracy and the Soviet Union against seemingly disorganized and retracting US imperialism, it seemed for a short time as if the liberal principles of the capitalist world would give place
to a worldwide system of political control over the economy (1997: 81).
And he continues:
‘In antwoord op deze uitdaging ontwikkelde zich echter, aanvankelijk spontaan en ongecoördineerd maar gaandeweg meer systematisch, een hergroepering van kapitalistische krachten. Daarbij werd het kapitaal geherstructureerd in een systeem van produktie voor de wereldmarkt, en de hegemonie van de bourgeoisie gereorganiseerd rond een neoliberale beheersconceptie. Het opvoeren van de bewapeningswedloop moet achteraf als de meest doorslaggevende component van dit offensief worden beschouwd, een offensief waarmee stap voor stap het initiatief op de revolutionaire en hervormingsgezinde krachten werd heroverd.’ (1997: 81).
Van der Pijl also observes that by the end of the 1970s there was a policy change in England as well as in the US to a harsh policy of confrontation with regard to internal and external counter-forces:
‘(...) Zowel in Engeland als in de VS werd onder invloed van onvoorziene crises en uitdagingen al in 1978-’79 overgestapt naar een harde confrontatiepolitiek tegenover binnen- en buitenlandse tegenkrachten. De neoliberale beheersconceptie die een afbouw inhoudt van het binnenlandse klassecompromis en de financiële wereld tot de organisator maakt van een mondiaal produktiesysteem dat geen nationale cohesie meer heeft, kreeg in de wereldpolitiek een verlengstuk in unilateralisme en nieuwe koude oorlog. (Halliday 1986; de term ‘neoconservatisme’ wordt in de VS gehanteerd voor voormalige ‘liberals’ die met de nieuwe koude-oorlogstrend meegingen)’ (1992: 262).
With the rise of neoliberalism and the so-called new right in the advanced capitalist-imperialist countries of the West, the policy of direct confrontation replaced the policy of compromise or detente with regard to the Soviet Union. The new policy (or the policy to bankrupt the Soviet Union) meant economic warfare against the Soviet Union, which, inter alia, involved less trade, particularly in high technology, with the Soviet Union, renewed arms race accompanied with ideological and political aggressiveness etc. Many scholars and observers maintain that the total of different policies amount to a, what they call, New or Second Cold War. In The Making of the Second Cold War, Fred Halliday maintains that ‘During Detente, there was greater tolerance of the other social order, more interest in and more accurate information about its character (...)’ (1986: 10). As to the Second Cold War he argues that ‘to some extent Carter had begun, by early 1978, to move his policies in a Cold War direction. But even the policies he pursued at the end of his Administration were far short of the Cold War policies advocated and implemented by Reagan (...)’ (1986: 107). Halliday points out that with Reagan’s ‘ (...) accession to office in January 1981 a marked break occurred in US foreign policy, and the Second Cold War entered a much more stormy, menacing phase (...)’ (1986: 107). He maintains that
‘Cold War II developed, like its predecessor Cold War I, from the breakdown of relations between the major capitalist states and the USSR that were to some degree more co-operative. On the basis of its first four years, 1979-1982, it can be seen how it partook, with some significant variations, of the characteristics that marked off Cold War I as a distinct period of postwar history.
The most obvious index of Cold War is a greater sense of the danger of war. Cold War II involved an increased emphasis by both sides upon the likelihood of war and on the need for military preparations against possible attacks from the enemy. (...)
Western governments had, since 1978, been calling for a new military capacity, stressing the need to expand military expenditure and highlighting the legitimacy of the use of force in international relations. (...) (1986: 11).
The neoliberal offensive of the restructured Western capital, which took the forms of trade and credit embargoes, arms race, the Second or New Cold War, played a vital role in deciding to launch perestroika in the Soviet Union. While the Western capital was able to restructure itself, the Soviet economy was unable to do so. It did not have, among other things, the necessary organizational and technological capacity and capital to restructure itself. Frank argues that ‘ (...) economic command organization and political bureaucracy were instrumental in depriving economies in Eastern Europe and the Soviet Union from the flexibility necessary for adaptation to the world economic crisis and the technological revolution and restructuring, which that same crisis engendered elsewhere. (...)’ (1993: 7). He adds that many ‘market’ economies and sectors in other parts of the world also failed and some economies ‘relied on important state political economic commands to promote their technological advance and adjustment.’ (1997: 7). And he continues:
‘(...) A major, but always unmentioned, difference between the Soviet Union and United States in the 1980[s] was that the former had no one to bail it out of bankruptcy, while the latter received massive capital contributions from Western Europe and Japan, and involuntarily through debt service from Latin America, to plug up the American foreign trade and domestic budget deficits, which were generated by Star Wars.’ (1993: 13).
As Van der Pijl notes
‘De herstructurering van het kapitaal in het Westen omvatte zowel een intensivering van de internationale arbeidsdeling en verhoging van de uitbuitingsgraad, als het introduceren van nieuwe produktietechnologie. De embargo’s [punitive embargoes] accentueerden slechts dat de USSR om structurele redenen niet in staat was deze ontwikkelingen bij te benen. (...)’ (1997: 81).
Van der Pijl maintains that, contrary to the view held by some people, ‘the crisis of the Soviet system did not evolve according to an inner logic alone.’ The USSR faced ‘a resurgent and militant capitalist West.’ Under the circumstances ‘the events of the late 1970s forced the USSR into a defensive posture.’ (1997: 111). The strategy of the Reagan Administration and the Trilateral Commission was to force the Soviet Union to change its system and in particular the way of resource allocation ‘(...) In the Trilateral Commission, the view (...) was to deny the USSR credit and agricultural commodities by which it could stabilise itself and Eastern Europe.’ ( 1997: 111). ‘The crown jewel in this strategy’ was the Strategic Defence Initiative (SDI) (1997: 111).
‘The Cold War militancy invigorated by the CPD [the Committee on the Present Danger] inspired several key decisions to step up economic warfare against the USSR. The 1979 INF [Intermediate Nuclear Force] missile decision was important in this respect. But even more so, the decision to launch the Star Wars (Strategic Defense Initiative) plan in 1983 was crucial in accelerating the collapse of the USSR. (...)’ (Van der Pijl 1997: 138).
It is obvious that as far as economic warfare against the Soviet Union concerned the arms race played a crucial role. The neoliberal offensive had aimed at, among other things, preventing the restructuring or modernization of the Soviet economy. The rulers of the Soviet Union were forced to engage in deadly competition with the West, which had the necessary capital and technology to engage in such a competition, and was able to restructure itself. Frank notes that the Cold War included ‘the arms race to spend the East into bankruptcy’ (1993: 5). On the intervention of the ‘market’ and the ‘arms race’ in the Soviet economy Frank writes that ‘ (...) the increased military expenditures coming on top of declining foreign exchange earnings affected efficiency and allocative mechanisms negatively or at least impeded their betterment (...)’ (1993: 11-12). According to him ‘(...) the ‘Second Cold War’ arms race itself was also market driven! (...)’ and Ronald Reagan started ‘Star Wars’ ‘with the express, documented by Sean Gervasi, of outspending the Soviet Union to its knees’ (1993: 12). John Gaddis points out that Reagan embraced ‘ (...) quite openly the idea of forcing changes within it [the Soviet regime] by exhausting the Russians in a new arms race (...) (In Bialer and Mandelbaum 1988: 338).


The economic facts speak for themselves that, prior to launching perestroika, the Soviet economy was in a very bad economic shape. Some scholars and observers maintain that the late 1970s and the decade of the 1980s represented the period of stagnation or ‘pre-crisis situation’. Others speak not only of stagnation, but also of depression and crisis. It is also argued by many scholars and experts that military expenditures and agriculture had been a great burden on the Soviet economy. Technological progress and the diffusion of new technology were far from helping to solve the economic problems of the Soviet economy. Technologically, the Soviet Union was unable to compete with the advanced capitalist economies of the West. Because of declining hard currency earnings, the Soviet Union was not able to renew its technology. The decline in export earnings and in import of advanced technology made it virtually impossible for the Soviet Union to realize the transition from extensive growth to intensive growth. The second economy, as a part of the Soviet economy, was, among other things, the question of corruption.

The question of the place of the Soviet economy in the world (capitalist) economy has been an ongoing debate. While some argue that the Soviet economy was a part of the world capitalist economy, others maintain that it was isolated from that economy. In other words, the question is: Was there only one world market or were there two separate world markets? The ones that argue that there was only one world market maintain that the economic problems of this market had an enormous impact on the Soviet economy. Another view is that the world market did not intervene in Soviet economy. The facts show that there was an inseparable relationship between the crisis in the West and the crisis of the Soviet economy. The economic policies of the advanced Western countries had profound effect on the economy of the USSR. Many agree that the neoliberal restructuring of the Western capital and the rise and offensive of the ‘new right’ were crucial factors in forcing the rulers in the Soviet Union to launch perestroika. From the monetary and fiscal policies of the leading capitalist economies to the arms race many factors had been instrumental to force the Soviet authorities to decide and implement a far-reaching economic reform programme.

I am of the opinion that the Soviet economy, at least since the mid-sixties, was an integral part of the capitalist world economy. In comparison with the past it participated much more in the international capitalist division of labour. The economies of Eastern Europe were an indispensable link between the Soviet economy and the economies of the Western capitalist-imperialist states. The Soviet economy of the late 1970s and of the 1980s became substantially dependent on the world market, especially for the transfer of advanced technology. In order to modernize and to realize the transition from extensive economic development into intensive one the hard currency earnings were vital for the Soviet Union. The export of the Soviet Union consisted overwhelmingly of the oil, other raw materials and gold. When the prices of these export items substantially declined on the world market, the Soviet Union was deprived of the much-needed hard currency, among other things, to import advanced technology.

The second half of the 1970s and the early 1980s was the period of the so-called neoliberal restructuring of the Western capital. The rise of the so-called new right accompanied this neoliberal restructuring. Economic and political neoliberalism meant, inter alia, economic warfare against the Soviet Union. The period of ‘detente’ was over. It was the period of the trade restrictions, especially in advanced technology, the credit restrictions, and the accelerated arms race. On top of all these came the ideological and political aggressiveness of some Western states, particularly the United States and the United Kingdom.

Especially because of the neoliberal offensive, the crisis of the capitalist world economy had a profound impact on the Soviet economy. The dominant fraction of the bureaucratic class in the Soviet Union was forced to launch a far-reaching economic reform programme to restructure the Soviet economy and to make it competitive on the world capitalist market.

In discussing the question of launching perestroika it would be a one-sided approach to emphasize the role played by the external or international factors. Perestroika was the result of an interaction between the domestic and international factors. The international factors could only be effective if the favourable internal conditions exist. In other words, it is the question of interaction between the internal dynamics and the external influences. By the early 1980s it became obvious that the economic and political structures of the former Soviet Union were ripe enough in order to launch an economic programme, which could have led to the transformation of the state capitalist economy of the Soviet Union into a classical market economy.


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(1) The different aspects of the history of the USSR have always been and still are a very interesting subject for me. I use the term ‘soviet’ for convenience sake. In reality the political system in the former Soviet Union had nothing to do with the original meaning of the term.
(2) There were different fractions of the bureaucratic class in the Soviet Union, but this is not the place to go into the division between different fractions with regard to perestroika.