Armageddon Averted: The Soviet Collapse, 1970-2000 (6 page)

This wrenching of industries and communities left an indelible mark on the culture and popular psyche. A cheeky British film entitled
The Full Monty
(1997) retro-spectively spotlighted a group of down-and-out steel-workers who hit upon a survival scheme: organize their own potbellied male striptease, recruiting performers from an unemployment queue. The film was set in Sheffield, and opened with footage from a bygone civic-booster film about a ‘city on the move, the jewel in 13

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Yorkshire’s crown’. Now, its idle men were compelled to show their jewels to get by. The film’s soundtrack appropriately featured disco, as in the industrial classic,
Saturday Night Fever
(1979), about a blue-collar dancing king, which had helped set off the late 1970s disco craze with the anthem of irrepressible dreams, ‘Staying Alive’.

Desperate times brought desperate approaches. In Johnstown, Pennsylvania, ‘tour buses idle outside the moldering steel mills’, wrote a
New York Times Magazine
reporter in 1996. He described how Johnstown was ‘heading into a future in which the economy will be fed by an ambitious, seemingly quixotic experiment called heritage tourism’, which ‘retails the often unhappy narratives of unlucky places, and is clearly a growth industry’.
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Monuments to misfortune soon pockmarked the entire industrial landscape of the West. The increases in oil prices in the 1970s had crystallized larger trends. Henry Kissinger, who served as President Richard Nixon’s Secretary of State during what Washington took to calling the Arab oil embargo, later wrote that it ‘altered irrevocably the world as it had grown up in the post-war period’.
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Kissinger had in mind the geopolitical balance of power and the new centrality of international economics that complicated diplomacy. So-called stagflation—high unemployment (stagnation) plus inflation—confounded America’s leading economists, and Watergate paralysed and disgraced Washington. Saigon and South Vietnam fell to the Communists in 1975. With much of US industry undergoing a painful overhaul, the superpower appeared 14

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at a low point, not at a crossroads leading to a resounding triumph in the cold war.

Oil windfall and institutional shortfall

From 1910 to 1950, when world oil output rose twelve-fold, Russian production rose only fourfold. One expert, writing in the early 1950s, warned that the oil supply is ‘the Achilles’ heel of the Soviet economy’. After the 1953

CIA-backed coup in Iran had helped block Soviet access to Iranian oil, the extensive Soviet manufacturing economy appeared to be in a pickle. But in 1959—some thirty years after a Soviet scientist had forecast the presence of vast oil deposits in the forested swamps of West Siberia—a gusher was struck. Between 1961 and 1969, five dozen new oil-fields were identified, and the Kremlin went from being a net importer of oil to an exporter.
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Even more fortuit-ously, this desperately needed Siberian oil rush broke just as the 1973 Arab–Israeli War and accompanying oil shock caused an unexpected leap in world oil prices, and the greatest economic boon the Soviet Union ever experienced. Without the discovery of Siberian oil, the Soviet Union might have collapsed decades earlier.

From 1973 to 1985, energy exports accounted for 80

per cent of the USSR’s expanding hard currency earnings.

And that was not all. Other oil exporting countries—top customers for Soviet weapons—saw their oil revenues increase from $23 billion in 1972 to $140 billion in 1977.

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Many Arab oil states went on military spending sprees, increasing Moscow’s oil windfall. What to do with all that cash? The Soviet leadership used its oil revenues to cushion the impact of the oil shock on its East European satellites. Oil money also paid for a huge Soviet military build-up that, incredibly, enabled the country to reach rough parity with the US. And it helped defray the costs of the war in Afghanistan, launched in the late 1970s. Oil money also went into higher salaries and better perks for the ever-expanding Soviet elite. And oil financed the acquisition of Western technology for making cars, syn-thetic fibres, and other products for consumers, as well as Western feed for Soviet livestock. In future, the inhabitants of the Soviet Union would look back fondly on the Brezhnev era, recalling the cornucopia of sausages that had been available in state stores at subsidized prices.

Oil seemed to save the Soviet Union in the 1970s, but it merely delayed the inevitable. The USSR had risen to become the world’s largest producer of oil and natural gas, and the third largest of coal, but it nonetheless suffered chronic energy shortages—what the leading expert aptly called ‘a crisis amid plenty’. That was because Soviet factories consumed energy in horribly gluttonous quantities, as if it were free. Then, in 1983, Siberian oil output began to decline. Output would recover in 1986, but after that it again declined, this time uninterruptedly. Making matters worse, in 1986 world oil prices plummeted by 69

per cent, to one of their lowest levels in the post-war period. And the dollar, the currency of the oil trade, also 16

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dropped like a stone. ‘Overnight,’ the expert wrote, ‘the windfall oil and dollar profits the Soviets had been enjoying for years were wiped out’.
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By this time, hungover from its long oil bender, the Soviet leadership was belatedly trying to address its profound structural economic troubles.

Those troubles derived from the country’s successes.

Whereas, in the 1920s, the Soviet economy had been about 20 per cent industry, transport, and construction, by the mid-1980s that percentage had risen to around 70.

No other country ever had such a high percentage of its economy in big factories and mines. And much of Soviet industry had been built during the 1930s, or rebuilt after the destruction of the Second World War according to 1930s specifications. The USSR’s Bethlehem Pennsylvanias and Sheffields numbered
in the thousands
, and they were even more antiquated. But, flush with its oil windfall, the Soviet Union had avoided the painful devastation that befell the substantial, yet smaller, rust belts of the United States, Great Britain, and Germany. But it could not do so forever. In the 1990s, the overthrow of socialist planning would lay bare a far greater challenge of massive enterprise restructuring. Post-Communist Russia would inherit, and grandly privatize, history’s largest ever assemblage of obsolete equipment.

Socialism’s politically driven economy proved very good—too good—at putting up a rust belt; and, unlike a market economy, socialism proved very bad at taking its rust belt down. What had once been a source of the Soviet 17

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Union’s strength and legitimization would become, when Russia rejoined the world economy, an enormous energy-consuming, value-subtracting burden, and ultimately, an invitation to scavenge and plunder. In the 1990s, export earnings from energy sources would continue—extending the elite’s post-1973 oil debauch. Rather than supporting a huge military build-up and a sprawling empire, however, the oil (and gas) money would go into private offshore bank accounts and hideaways on the Spanish and French Rivieras. Russia’s economic debacle embodied a delayed end, on a bigger scale and slightly camouflaged by oil flows, to an entire industrial epoch, of which it, too, formed a part, and whose demise had been clearly visible twenty years before in Germany’s Ruhr Valley, Sheffield and England’s North, and America’s Midwest.

And that was just half the story. Obsolete industry can in theory be overcome, no matter how vast its extent. But even after junking planning, Russia was not able to overcome its unprecedentedly large industrial junk heap, or quickly to create substantial new, dynamic sectors. That was because Russia lacked the indispensable liberal institutions that make markets work, while it possessed a plethora of the kinds of institutions that inhibit effective market operation. Here was a banal but useful reminder: the market is not an economic but a political and institutional phenomenon. The proof of that proposition lies not in countries such as the United States, where effective courts and indispensable government regulation are taken for granted, or even ideologically denounced, but in 18

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the post-Soviet countries, where most market-facilitating institutions are lacking or function egregiously. Thus, obsolete as its physical plant had become, the Soviet Union’s central dilemma—as post-Soviet Russia would demonstrate—was really political and institutional.

The twentieth century’s great turn

The central Soviet dilemma was also geopolitical. In the 1980s the economy of India was arguably in worse shape (for different reasons), but India was not locked in a global superpower competition with the United States (allied with West Germany, France, Britain, Italy, Canada, and Japan). That rivalry, moreover, was not merely economic, technological, and military, but also political, cultural, and moral. From its inception, the Soviet Union had claimed to be an experiment in socialism, a superior alternative to capitalism, for the entire world. If socialism was not superior to capitalism, its existence could not be justified. In the interwar period, during Stalin’s violent crusade to build socialism, capitalism had seemed for many people to be synonymous with world imperialism, the senseless slaughter of the First World War, goose-stepping militarism, and Great Depression unemployment.

Against that background, the idea of a non-capitalist world—with the same modern machines but supposedly with social justice—held wide appeal.

But in the Second World War fascism was defeated, and 19

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after the war the capitalist dictatorships embraced democracy. Instead of a final economic crisis anticipated by Stalin and others, capitalism experienced an unprecedented boom, which made the Depression a memory and homeownership a mass phenomenon. Economic growth in the US, after a robust 1950s, hit a phenomenal 52.8

per cent in the 1960s; more significantly, median family income rose 39.7 per cent over the decade. In Japan and West Germany, losers in the Second World War, economic ‘miracles’ led to revolutions in mass consumption. New media technologies, such as cinema and radio, which had seemed so convenient for interwar dictatorships seeking to spread propaganda, turned out to be conduits of a commercial mass culture impervious to state borders.

Finally, all leading capitalist countries embraced the ‘welfare state’—a term coined during the Second World War—stabilizing their social orders, and challenging socialism on its own turf. In short, between the 1930s and the 1960s, the image and reality of capitalism changed radically. Affordable Levittown homes, ubiquitous department stores overflowing with inexpensive consumer goods, expanded health and retirement benefits, and increasingly democratic institutions were weapons altogether different from Nazi tanks.

As if that was not pressure enough, the Second World War and its aftermath also set in motion a wave of decolonization, which the Soviet Union sought to exploit but which ended up further undermining its position. The Soviet Union was a land empire, with a twist. Whereas the 20

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pre-revolutionary Russian empire comprised only non-ethnic provinces, aside from the Duchy of Finland and the small Central Asian ‘protectorates’ of Bukhara and Khiva, the Soviet Union consisted of fifteen nationally designated republics with state borders. Beginning in the 1920s, Moscow presided over an expansion of the republics’ national institutions and national consciousness, which endured the purges, mass deportations, and Russification. Two of the Union republics, Ukraine and Belarussia, got their own UN seats, and all underwent economic development.

Proudly, the Soviet Union contrasted itself with the capitalist empires of Britain or France. By the 1970s, however, after almost all overseas territories controlled by capitalist countries had gained independence, the idea of a better form of empire became an anachronism. The Soviet Union, moreover, did not have just an ‘inner empire’ but also what George Orwell called an ‘outer empire’.

Chasing Hitler out of the Soviet Union back to Berlin presented Stalin with the irresistible opportunity of regaining some tsarist territories not reconquered in 1917–21, and with swallowing much of Eastern Europe.

Not content merely to exercise political and military domination, the Soviet Union attempted after 1948 to clone satellite regimes. Yet Sovietization of Eastern Europe took place not during the 1930s Great Depression and fascist militarism, but during the post-war capitalist boom and deployment of comprehensive welfare states. In these altered circumstances, the fate of Soviet socialism was now irrevocably tied to the fate of the regimes in Eastern 21

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Europe. Already in the early 1950s, and especially after Nikita Khrushchev had denounced Stalin in 1956 and Poland and Hungary had erupted in revolt, Eastern Europe weighed down the Soviet leadership. ‘If we depart Hungary,’ Khrushchev told his colleagues behind closed doors, ‘it will give a great boost to the Americans, English, French—the imperialists. They will perceive it as a weakness on our part and go on the offensive’.
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Despite the crackdown, Hungary was eventually allowed to legalize some private enterprise, while Poland halted the collectivization of agriculture and conceded a prominent role for the Catholic Church, opening fissures in the Soviet model of socialism.

In 1968, Moscow again felt compelled to invade an ostensible ally, to crush the efforts to ‘reform’ socialism in Czechoslovakia, which became particularly embittered and damaged the USSR’s international prestige. Two years later, and again in 1976, mass strikes rocked Poland. In 1978, the first non-Italian since 1523, Karol Woityla, archbishop of Krakow, was chosen pope. The next year, on his first pilgrimage home, more than ten million Poles attended outdoor celebrations of the mass, often weeping with joy. In 1980, Polish workers, inspired by the pope and provoked by price increases, rose en masse, forming a countrywide independent trade union and bringing the socialist system to the point of liquidation. A crackdown by Polish leaders in December 1981 saved the regime, for the time being. To pacify workers the Polish regime had been borrowing from the West to import consumer goods, a 22