Gorbachev wanted to reverse the economic decline of the Brezhnev years by the ‘restructuring’ of the Soviet economy.
He was convinced the central planning was not working as he believed this and the obvious falsifying of official statistics of production had led to stagnation and a lack of initiative amongst workers and managers. He wished for perestroika to have an element of competition into the work place by debilitating state monopolies and encouraging some free enterprise; the prices which were determined through supply and demand, as well as better working conditions and motivation, thus would replace the subsidising by the state and thus reinvigorate the economy.Gorbachev also needed to reinvigorate the Soviet economy if it was to have any chance of competing with Ronald Reagan’s United States of America. Reagan had decided to escalate the arms race especially through the Star Wars programme and if Gorbachev failed to improve the economy it was clear that they would lose the Cold War. Gorbachev also wanted a political form of perestroika to halt corruption within the Party and end the ‘stability of cadres’- instead of the alleged continuity of experience, end the creeping corruption within the party, thereby allowing less criticism of the government.Economic Perestroika: Gorbachev instigated ‘Restructuring’ of the economy to reverse the negative growth in the 1970s and early 1980s by encouraging a measure of free enterprise and small private firms were allowed to compete with those run by the state. He instigated a Law on Enterprise in 1988, where managers were given the power to set prices, negotiate their own supplies, control their own budgets and set wages, which enabled the economy was to be made more responsive to consumer demand.
The state monopolies were debilitated by being broken down into smaller state industries to foster internal competition. For example, Aeroflot was split into a number of independent enterprises and these newly autonomous business organisations were encouraged to seek foreign investment.Gorbachev believed the CPSU had to fight for the right to govern the Soviet Union and thereby allow free elections in 1989 elections to the Congress of Peoples Deputies, which were held by secret ballot. Finally in March 1990 the article; which banned all other parties was repealed. Gorbachev wished to reduce the power of the nomenklatura firstly by removing some fringe benefits including their Volga cars and Moreover, he wished to return to Lenin’s 1924 Constitution and give more power to the locally elected soviets.His policy would mean the end of communism in the USSR if the market economy were introduced. He did introduce a Law on Enterprise in 1988, where managers were given the power to set prices, negotiate their own supplies, control their own budgets and set wages, which enabled the economy was to be made more responsive to consumer demand..
Aeroflot, for example, was split into a number of independent enterprises, some of which became the nucleus for future independent airlines. These newly autonomous business organisations were encouraged to seek foreign investment.The result was that both shot up, producing inflation and in 1987 production fell by 6%. It was also unable to reverse the corruption and stagnation which proliferated during the Brezhnev years and this was aggravated by the fact that there was no overall clear plan to the perestroika reforms, where many members of the nomenklatura argued he was making it up as he went along. Government debt continued to rise as 40% still spent on space and defence and the latter spending was too high even after the arms control agreements with Presdent Reagan, which was exacerbated starkly by the devastating impact of Chernobyl and the Armenian earthquake.
This was also amplified by the channelling of huge amounts of capital into defence, due to Reagan’s acceleration of the arms race, especially the Star Wars programme.Gorbachev did not receive the financial help from the West that he was hoping for. He knew that he needed help from the West, especially financial support from the G7 countries, which included the USA, Britain, West Germany and Japan and believed that if he made concessions on arms, they would provide financial backing, however he was mistaken and did not provide the large-scale helped he so evidently required.As well as this, Gorbachev’s reforms were too limited and badly planned, as he was hasty in making the reforms in the time available and was overzealous for the changes to occur. Due to the large pace of change, the soviet populace could not adapt to the system as quickly and thus cause opposition to communism itself. As well as this, fundamental problems of inefficiency and lack of incentive inherent in the communist system not tackled and were maintained by the persistence of price subsidies.
Most reformers therefore urged a quickening of the pace of change to abandon communism itself.State enterprises were hopelessly inefficient, wherein 40% of factories were working at a loss and 30% of the state budget went on subsidies to keep down prices when he became leader. The fact that the rouble was so weak and unstable precluded any major foreign investment. But in addition to the macroeconomic problems there were microeconomic problems; there was still a shortage of basic commodities like soap and toothpaste made worse by the fact that factory owners, free to produce what they wanted, neglected low profit products.
Moreover, there was also no attempt to end price subsidies in an attempt to hide real inflation and there were increased disbursements of state benefits, which continued to drain resources.