Subject essay: James von Geldern
The crisis of the Soviet planned economy was beyond dispute by 1991. Centralized planning no longer functioned, leading the economy into permanent stagnation. Gorbachev had half-heartedly pursued reforms from 1985-89, but bureaucratic resistance, crumbling infrastructure, and Soviet popular psychology condemned reform to failure. Gorbachev’s own penchant for contradictions did not help. Attempts at decentralization ran afoul of his own desire for control; bureaucratic interference and confiscatory taxes undermined his gestures towards the market economy. The budget deficits caused by reforms, and hesitation to withdraw subsidies that had made life tolerable under the Soviet economy, undermined and eventually discredited the ruble. Thus, having dismantled the cornerstones of central planning, Gorbachev aborted the birth of a market. Much commerce inside the Soviet economy devolved into barter system between individual enterprises, cities and regions. A modern economy cannot run on such a basis, and citizens soon found such items as tea, soap and meat rationed. Long lines formed for bread and cigarettes, which most Russians considered essentials.
The visible collapse of the economy inspired a timid party leadership to recruit a team of sophisticated economists familiar with western market practices. Led by Stanislav Shatalin, over the summer of 1990 the team developed a plan of radical conversion that acquired the name of “500 Days,” for the period in which the measures were to be introduced. Cornerstones of the plan, which solicited the support of the western bankers whose loans were needed to keep the economy solvent, included price liberalization accompanied by severe wage restraints; drastic cuts in subsidies to industry and agriculture; privatization of state-owned assets, including farm land; overhaul of the tax and banking systems; and liberalization of foreign trade, implying a convertible ruble. The enthusiasm of western economists was matched by the anxiety of Soviet leaders and citizens, which eventually led Gorbachev to reject the plan for a more timid version designed by Prime Minister Nikolai Ryzhkov. Fearing social unrest in the wake of withdrawn subsidies, and refusing to consider the privatization of land, Gorbachev was perhaps most alarmed by the political and economic autonomy given the fifteen Soviet republics. The decentralization sketched in the plan would have rendered the Soviet Union a commonwealth, making Russian President Boris Eltsin the leader of the country, and Soviet leader Gorbachev something along the lines of a foreign minister coordinating the policies of the constituent republics.
Radical though he seemed, events of the next two years rendered Shatalin a rather conservative economist. Though advocating modern tools such as the computer, Shatalin was deeply indebted to such Soviet reform economists as Leonid Abalkin; and he held as his ultimate goal, as did Gorbachev, the revitalization of the Soviet entity. The shadow of the 500 Days was clearly visible in the December 1991 dissolution of the Soviet Union, which represented the most radical, but perhaps most inevitable outcome of the plan.