On his blog “Marginal Revolution”, economist Tyler Cowen links to this 2006 speech given by former Soviet Prime Minister Yegor Gaidar about the political and economic collapse of the Soviet Union.
Gaidar says it can all be summed up in three words: oil and grain. The grain problem dated all the way back to the 1950s as the Soviets struggled to increase grain production in the face of a population boom. They failed and went from becoming the largest exporter of grain to one of the largest importers of grain. Meanwhile, over time the Soviet government had come to rely heavily on revenue from selling oil, and even though Soviet oil production had diminished substantially over the years, the high market price of oil in the 1970s kept the overall revenue picture satisfactory.
Gaidar is direct in his analysis:
The timeline of the collapse of the Soviet Union can be traced to September 13, 1985. On this date, Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically. The Saudis stopped protecting oil prices, and Saudi Arabia quickly regained its share in the world market. During the next six months, oil production in Saudi Arabia increased fourfold, while oil prices collapsed by approximately the same amount in real terms.
The collapse of the oil market was directly responsible for the bankruptcy of the Soviet economy — without oil revenue, the Soviets could not pay for grain imports, could not continue to funnel cash into the war in Afghanistan, and could not bludgeon international lenders into bailing them out. By 1989, Gorbachev had no choice but to start bargaining away political concessions to the West in hopes of attracting money. By 1991, the political state of the Union of Soviet Socialist Republics was extinct.
Um, I don’t see much mention of The Gipper in that analysis. You remember The Gipper, right? The guy who “won” the Cold War? Yes, the same guy who turned down the ultimate political concession — total nuclear disarmament — when Gorby offered it, hat in hand, in Reykjavik.
Good links — the Gaidar speech is illustrated with some useful graphs and is very accessible even to those of us who aren’t economists.
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