Collapse: The Fall of the Soviet Union

February 2024

This book was Amazing. I haven't researched this topic beyond reading this book, so take everything here as "According to the author".

A slow-motion train wreck

We learn of the Fall of Communism as the fall of the Berlin Wall. The impression we get (or rather, I got) from that, is that it was a discrete moment in history:
  1. The USSR exists, Communism is a threat in the world
  2. The Berlin Wall falls
  3. The USSR disappears, Communism is no longer.

This book puts that into perspective: on the day the Berlin Wall fell, Soviet leadership barely paid attention to it. They were more worried about what was happening in Lithuania. East Germany was not part of the USSR and it falling didn't mean much to them. But Lithuania was part of the USSR and their revolution was picking up steam. At that time, Gorbachev was still fully in control of the Party, the KGB, and the Army. If he were Stalin, he would've deployed that and crushed any Baltic revolution. Luckily, he wasn't.

  • The Berlin Wall fell on Nov 9, 1989.
  • Two years later the USSR was dissolved on Dec 8, 1991.

The book largely covers what happened before 1989 and throughout those two years. Two years is a long time for collapse. To contrast that, in Argentina in Dec 2001, the government collapsed in a week, and by March 2002, things were stable again1.

The concrete causes for collapse

The protagonists of the story are all ideologues so they keep talking about "the neo-Stalinist forces" or "the nationalistic tendencies" or "the Russian stubbornness" as why their state was collapsing. Because of that, the book only makes passing remarks regarding what happened at a "mechanistic level" that made people unhappy. This is my crude understanding:

  1. The Soviet economy's overall production decreased every year (i.e. they made fewer things). Therefore, each year they exported less and eventually were unable to buy hard currency to pay for their necessary imports (including food). This is a typical current account imbalance and happens to lots of countries.
    • Why did the economy produce less? The book doesn't delve deep into that and accepts the standard answer: centrally planned economies don't do well. I find the essence of this answer right but the specifics matter enough to read another book about it.
    • A partial answer has nothing to do with central planning: oil prices were high in the early 1980s and went down by 1986. Much of the USSR's exports was oil.
  2. The USSR borrowed the hard currency it needed for imports until world bankers told them they were out of credit.
  3. The USSR wasn't able to "cut on spending" because when the state runs the economy, state spending is the economy.
  4. So, over time, the USSR had to do with fewer imports, fewer internally produced goods.
  5. People were very unhappy about shortages, food insecurity and scarcity, and overall service levels. They demanded change.

So far, this is typical macro economics. Most Latam countries have been through their version of this, multiple times.

But here is something very different about the USSR. They had two kinds of money:

  • nal: "cash", regular money, which in the US would be equivalent to the dollars in your wallet. You get paid your salary in nal and you can buy food with it at the store.
  • beznal: "cashless", government money that only state-owned enterprises were allowed to receive and use as payment.

Crucially, there was no way to convert between them2.

I don't fully understand beznal and I could barely find any English sources about it so take this section as very uninformed.

The way I picture beznal as the state's internal accounting ledger meant for state resource allocation. In simpler words: if the state-owned metallurgy wanted to buy coal from the state-owned coal mine, they could pay with beznal. But the metallurgy wouldn't be able to buy cakes for their employees birthdays (a consumer good) with beznal. They could also not pay their employees with beznal, only with nal.

In 1987, Gorbachev passed the Law of the Individual State Enterprise which partially freed state enterprises:

  • State enterprises were free to determine output levels based on demand
  • They still had to fulfill state orders, but could dispose of the remaining output.
  • State enterprises were on their own: they had to cover their costs (wages, supplies, taxes, etc.) and they wouldn't be bailed out by the government if they went bankrupt.
  • State enterprises would be run by elected workers' collectives instead of ministries.
  • State enterprises could set their own prices
  • State enterprises could convert between nal and beznal

The last two points greatly accelerated the already-high inflation:

  • All that beznal money issued could now make it to consumer goods and bid their prices up.
  • Instead of selling at mandated prices and having shortages, state enterprises could now raise the price of scarce goods so they'd go to those willing to pay for them3

Perestroika and Glasnost

The Law of Individual State Enterprise was one of many reforms, under the banner of Perestroika that Gorbachev passed during the late 1980s. The economic reforms completely changed the economy but didn't yield the expected improvements.

But within those reforms was "Glasnost" which translates to openness or "being public". This allowed people to openly discuss the problems with the government, reduce government corruption, travel to the West, and eventually self-organize in national elections.

Those democratic reforms (which Gorbachev welcomed) allowed each national republic to self-govern ("to some extent") and elect their own leaders. It was from those democratic elections that the 15 republic found their new leaders, the most important being Yeltsin for Russia, Kravchuk for Ukraine, and Nazarbayev for Kazakhstan. Once those were elected, and the central USSR government failed to produce economic answers, it was over for the USSR. Gorbachev's popularity fell each year, and with him, the idea of the a centrally controlled USSR.

Yeltsin visits a US grocery store

One consequence of opening up travel is that people got to see how much better those in the West had it. The most important of these trips was Yeltsin's 1989 trip to Texas. He spent most of his time being hosted by diplomats with great material lives. Yeltsin was not particularly impressed by this: high-ranking officers in the USSR also had fairly good lives. But went he visited a regular American supermarket, he lost it.

This visit completely broke whatever faith he had in socialism:

They were lying to the people all the time, telling the fairy tales, inventing something – but everything is already invented!

By the time he came back to Russia, he was determined to introduce market reforms.

This post narrates the event well.

Living in Miami, I am not surprised by this. It still happens to Cuban immigrants today. When they first arrive, they go to the supermarket and lose their minds. If you search for "Cuban in supermarket", you'll both type of videos:

  • Cubans going into an American supermarket and getting emotional
  • Empty Cuban supermarkets

    The Soviet Union Empire

    As Yeltsin's popular support grew and ethnic Russians grew tired of their bad economic conditions, they pushed to get rid of the empire they could no longer afford. The book compares the USSR to the British Empire with:
  • USSR → British Empire
    • Russia → England. The ruling nation.
  • Ukraine → Scotland. The nation with an independent identity but still with long and intertwined history with the ruling nation.
  • Belarus → Wales. A less independent but still distinct nation
  • Kazhakstan → India (but much smaller). A distant nation, populous and growing, but full of natural resources.

Yeltsin's campaign rested would be the equivalent of the British saying "No Empire, focus on England". Retreat the Army, stop the subsidies to other nations etc.

What could have been? United States of Eurasia

The book makes a very compelling case that as the USSR was collapsing, anything could've happened. As Gorbachev was losing power to the leaders of the new nations, he made a series of proposals on how the USSR could continue existing over many months.

These proposals4 are ordered from most coordination to least coordination:

  1. The Soviet Union was, that, a union. It had 15 national republics, Russia being the biggest one. But since the beginning it was run from Moscow like a centralized state, with the republics being more like weak provinces.
  2. United States of Eurasia: each "nation" becomes a state under a federal government controlled from Moscow, with many centralized functions like the Army, secret services, currency, etc.
  3. The Eurasian Union: like the European Union with a common currency, free trade, and plenty of international regulation, but countries are still sovereign.
  4. Soviet Common Wealth: countries are sovereign, have their own currency, but have free trade, easy immigration, with Russia as clear leader.

As Gorbachev progressively gave power to the republics, he proposed all of the above in descending order. He clung to the idea of a union that he could preside over until his last month in office. What actually happened was almost no coordination: the republics would become sovereign countries and enter into ad-hoc agreements with each other.

Gorbachev the man

This is the part that I am most fascinated by:

As he lost power, Gorbachev let go of state control over resources and introduced free market capitalism very quickly and almost without a fight. He said "can we have the state own important industries?" was told No and that was that.

But he never let go of the idea of an overarching union ruling over the Soviet states. He proposed increasingly weak versions of the union. Implicitly, he always expected to lead that union. When somebody said to him "There will be no union!" he asked "and what will happen to me then?". In his head, he was synonymous with the union.

But Gorbachev wanted his country to exist as a superpower. He said that multiple times:

  • "They are not going to take us seriously if we don't have a Union"
  • "We are not Costa Rica!" when he went to borrow for money to the IMF like any other broke country and was told no.

The core ideas of Communism rest on central control of resources, not on the size of the state that run it. I think this tells you everything you need to know about how the last Soviets actually saw the world.

Here are some other observations about Gorbachev from the book:

Gorbachev the Statesman

  • Gorbachev craved for events to feel historic. That was his highest form of praise, accomplishment, and aspiration. He talked about "his legacy" and his image in the West
    • In some ways, he was the opposite of Mao. Mao did whatever he wanted, when he wanted, with no regard for legacy, or what would happen after he died.
    • Gorbachev saw himself as the protector of the Soviet Constitution.
  • He was drawn towards world affairs and talking about "the world order". At no point any of his ideas for a world order were implemented – many of them were vague enough to make implementation impossible.
  • You can see what "being a Statesman" means when somebody takes that more seriously than the consequences of their reforms.

Gorbachev the Ideologue

  • Using the Simulacra Levels framework, Gorbachev is constantly talking at Level 4. His highest compliment was "neo-Lenininst". His worst insult, "neo-Stalinist". He judged ideas based on how much Lenin or Stalin they evoked, always favoring Lenin.
  • When he was on vacation, Gorbachev wrote ideology essays similar to his idol's Lenin.
  • When he was working, Gorbachev wrote ideological speeches.
  • Throughout the book, several people (who didn't like Gorbachev) keep referring to his speeches with variances of "flatulence".
  • He did all of these regardless of the "concrete" problems in the society: runaway inflation, food scarcity, rampant discontent, etc.
  • Gorbachev held the keys to the nuclear missiles for a long time. At some point, as Yeltsin gained power, they secretly disconnected his keys. Nobody had the heart to tell Gorbachev about this, which proceeded to act out the nuclear procedures for a couple of weeks, until he formally handed them off to Yeltsin officially, in a big legible historical event.
    • Gorbachev cared about the prestige of the weapons provided, not about actually ensuring their safety.

US involvement

The book paints Bush's administration mostly as worried onlookers. The White House comes out as very informed and on top of things but also very passive. They are never making offers to the different Soviet players: they are responding to their requests, often with delay and ambivalence. In that sense, it really shows the collapse as an implosion, caused purely by internal factors.

As the USSR was collapsing, the main considerations of the US seemed to be:

  • Who will control the nukes?
  • Will there be a civil war?
  • Will there be a dictator on the other side? Can we keep these countries democratic?
  • Will ethnic minorities be protected from genocide?5 Will human rights be protected?
  • We just became friends with the USSR, will the new leaders be friends as well?
  • Who would pay for the current debts of the USSR if it dissolved?

Gorbachev wanted the same as the US for all these questions, which is why Bush clung to him until it was impossible to do so anymore.

Simultaneously, the internal power struggles of Gorbachev vs Yeltsin were affected by US recognition at two levels:

  • If Russia (Yeltsin) was recognized internationally as a sovereign country, it could borrow money from the US.
  • The people in power saw the West as a source of legitimacy. If the US, France, and the UK recognized Russia as a country outside of the USSR, that would help make that claim legitimate.

Surprisingly, the Bush administration didn't want the USSR to fall. They liked dealing with Gorbachev and they prefer having one guy with the nukes than 4 guys with nukes6. They recognized Russia's claim to sovereignty only when (a) they had no choice and (b) they were fairly certain they could deal with the resulting nukes.

(Un)Surprisingly, Bush's direct relationship with Gorbachev was a big factor in how this played out. Bush was not very calculating and prolonged "getting rid" of Gorbachev even when there was no logical reason to do it, beyond the fact that he considered him a friend.


Thank you to Grant Slatton for reading and discussing the post!


Footnotes

  1. defined as "no further political changes"↩
  2. No official way to convert between nal and beznal of course. I bet that people found ways to convert between them all the time.↩
  3. As always with goods allocation, the price system both favors (a) people that want the good more and are willing to pay more for it and (b) those who simply have more to pay with. As a society, we like (a) but we resent (b) which is why we have such a complicated relationship with the price system.↩
  4. I made up their names to give you a feel for what was discussed. None of these things happened so it is impossible to know how they would've actually played out.↩
  5. States in the USSR have a long history of killing their local minorities when in crisis.↩
  6. Only 4 out of 15 nations had nuclear weapons: Russia, Ukraine, Belarus, and Kazakhstan.↩