Economic Reform and Decline after 1964 (Edexcel A-Level History): Revision Notes
Economic Reform and Decline after 1964
Introduction: The post-Khrushchev period
Following Khrushchev's removal from power in 1964, the failure of his economic reforms significantly discredited the very idea of reform within the Soviet leadership. This scepticism towards reform persisted until at least the end of the 1970s. Brezhnev and subsequent Soviet leaders even avoided using the word 'reform' altogether. However, this did not mean the economy remained completely static. Between Khrushchev's fall in 1964 and Chernenko's death in 1985, there were notable changes in economic priorities and some small-scale economic adjustments, even if fundamental reform was avoided.
This period can be understood as a shift from attempted reform (1954-64) to economic restoration and management (1964-85). Leaders during this time essentially tried to maintain the existing Stalinist economic system rather than transform it.
Restoration of the economy under Brezhnev
When Brezhnev came to power, he quickly moved to reverse many of Khrushchev's reforms and restore earlier practices:
Key changes:
- The Communist Party was reunited after Khrushchev had divided it into agricultural and industrial sections
- Seven-Year Plans were abandoned in favour of returning to the traditional Five-Year Plans from 1966 onwards
- Brezhnev was essentially content to manage the system that Stalin had established, rather than attempting major structural changes
Like Khrushchev, Brezhnev hoped to provide Soviet citizens with more consumer goods. However, his ambitions were far more modest than his predecessor's. He aimed for gradual improvements in both the quality and quantity of consumer goods, but without the dramatic promises that Khrushchev had made.
This conservative approach reflected Brezhnev's preference for stability and continuity over risky reform attempts. This would become the defining characteristic of the entire Brezhnev era.
The Kosygin reforms (1968)
Despite the general move away from reform, Alexei Kosygin (a senior Soviet official) advocated for specific economic changes designed to improve efficiency.
Main proposals:
- Cut investment in the most inefficient collective farms
- Redirect this saved money towards light industry (industries producing consumer goods)
- Give factory managers more power over production decisions
- Judge factory success by profit rather than simply by production levels
- Force factories to produce goods that consumers actually wanted, not just meet arbitrary production targets
Timeline of the Kosygin Reforms:
The reforms were introduced in January 1968 but were abruptly halted in August 1968 - a period of only eight months.
Why did they fail?
The timing was disastrous. Similar economic reforms in Czechoslovakia had been part of broader reforms that led to the Prague Spring - a movement towards greater freedom that challenged Soviet control. When the Czechoslovakian rebellion against Soviet authority occurred, it completely discredited Kosygin's programme in the eyes of Soviet leaders.
Soviet leaders feared that economic reform might lead to political liberalisation and the weakening of Communist Party control. This demonstrates how political considerations consistently trumped economic logic in the Soviet system.
As a result, authority was returned to central planners, and the brief experiment with giving managers more autonomy ended.
Increased military investment
Brezhnev significantly increased military spending, with a specific strategic goal in mind.
Objective:
Brezhnev wanted to achieve nuclear parity with the United States - meaning equal nuclear weapons capability. This goal was driven by recent humiliations:
- During the Berlin Crisis of 1961, Khrushchev had been forced to back down
- During the Cuban Missile Crisis of 1962, Khrushchev again had to retreat
In both cases, the USA's much larger nuclear arsenal meant it could threaten to destroy the Soviet Union in a nuclear war. Brezhnev was determined that the Soviet Union would never again be forced to back down because of nuclear inferiority.
Statistics:
- Military spending increased from approximately 11% of GDP in 1964 to 13% in 1970
- The policy succeeded: nuclear parity was achieved by 1970
Consequences:
While achieving nuclear parity was a strategic success, it came at a significant cost. Maintaining this level of military spending became a substantial drain on the Soviet economy. Resources that could have been used for consumer goods, infrastructure improvements, or agricultural development were instead diverted to weapons production. This contributed to the growing economic problems that became increasingly evident throughout the 1970s and 1980s.
'Developed socialism'
Brezhnev fundamentally changed Soviet economic goals and expectations.
What changed:
Khrushchev had ambitiously promised to build full Communism by 1980 - a society of abundance where everyone's needs would be met. Brezhnev abandoned this promise entirely. Slower economic growth during the 1960s and 1970s, combined with increased military spending, made such a transformation impossible.
The new concept:
Instead, Brezhnev introduced the idea of 'developed socialism', which was far more modest:
- An economy providing job security for all citizens
- Low prices for essential goods, especially food
- Gradual improvements in living standards rather than dramatic transformation
How was this achieved?
Rather than expanding agricultural production or initiating genuine economic reform, Brezhnev's government achieved low food prices through a simpler method: importing large quantities of grain from the West. This was essentially buying social stability rather than earning it through economic efficiency.
This approach shows how Brezhnev prioritised managing expectations and maintaining stability over solving underlying economic problems.
Second economy and the black market
The second economy (also called the black economy) refers to illegal economic activity outside the official state-controlled system.
Historical development:
A black market had existed in the Soviet Union since 1928, when Stalin began his economic transformation. However, under Stalin, it remained relatively small because:
- Stalin was willing to punish black market traders with death or long-term imprisonment in labour camps
- The use of terror kept illegal trading suppressed
After Stalin's death in 1953 and the reduction in terror, the black market grew substantially. It became so significant that it was renamed the 'second economy', acknowledging its considerable scale within Soviet society.
Brezhnev's approach:
Brezhnev took a pragmatic view of the second economy, accepting it as a 'necessary evil'. Rather than trying to eliminate illegal trading, he allowed it to continue because:
- It increased ordinary citizens' access to consumer goods and food
- It helped support his goal of raising living standards
- It provided goods and services the official economy failed to supply
This toleration of the black economy reveals the fundamental weakness of the Soviet system. The official economy was so inefficient that the government had to tolerate illegal activity just to maintain basic living standards.
Andropov's 'reforms', 1982-84
Yuri Andropov became Soviet leader in 1982 and took a different approach from Brezhnev, though he too refused to use the word 'reform'.
Key difference from Brezhnev:
Unlike Brezhnev, Andropov was willing to admit that significant economic problems existed and needed to be addressed. However, he was not willing to change the fundamental nature of the Soviet economy. He believed the system itself was sound, but people weren't working hard enough.
Andropov's diagnosis:
For Andropov, the key issue was labour discipline - workers were not productive enough due to corruption, drunkenness, and absenteeism. To improve productivity, he initiated three major campaigns:
Andropov's Three Campaigns (Remember: CAT)
1. Anti-corruption campaign (November 1982)
- Andropov investigated senior Party officials and industrial managers who were using Soviet resources for personal enrichment
- High-profile prosecutions were launched to send a message
- Example: Brezhnev's Minister of the Interior, Nikolai Shchelokov, was sacked and put on trial for corruption. He took his own life before the trial concluded
- This demonstrated that even powerful officials were not immune from accountability
2. Anti-alcohol campaign The campaign targeted workplace drinking:
- Workers could be sacked for drunkenness at work
- Workers could be fined for damaging machinery or products if they were drunk
- This reflected the serious problem of alcoholism affecting Soviet productivity
3. Operation Trawl This was an anti-drunkenness and anti-absenteeism campaign:
- KGB officers visited public places including parks, restaurants, and train stations
- They arrested people who were drunk or absent from work during working hours
- This created a climate of fear and surveillance
Results:
The campaigns had limited success:
- Consumption of traditional vodka did decrease
- However, consumption of 'Andropovka' (a lower-quality, cheaper vodka) actually increased - people simply switched to cheaper alcohol
- The campaigns were poorly enforced, so drunkenness and poor discipline continued in many workplaces
- The reforms did not stop economic decline
- They did not lead to the collapse of the Soviet Union, but neither did they solve underlying problems
Andropov's approach shows the limitations of trying to fix systemic economic problems through discipline and enforcement alone, without addressing structural issues.
Soviet economic decline
Economic decline became increasingly evident during the 1970s, though its roots were much deeper in the structure of the Soviet system.
Declining growth rates
The contrast between the 1950s and 1970s was stark:
The 1950s - rapid growth:
- In 1945, the Soviet economy was the fastest growing economy in the world
- Between 1950 and 1958, the economy grew at an average rate of 7.1% per year
- By comparison, the USA grew by only about 2.9% per year during the same period
- The Soviet economy appeared to be outperforming the capitalist US economy
The slowdown:
- Growth rates declined to an average of 5.3% between 1958 and 1964
- By the 1970s, growth had fallen to around 2% per year
- The Soviet Union was now growing more slowly than the USA
Understanding the problem: Extensive vs intensive growth
This decline reflected fundamental problems in how the command economy (centrally planned economy) functioned:
Two Types of Economic Growth:
Extensive growth: Growth based on building new factories, workshops, or opening new mines. Requires adding more workers, more resources, and more facilities. The command economy was good at producing extensive growth - central planners could effectively direct resources to build new industrial capacity.
Intensive growth: Growth based on improving the efficiency of existing factories, workshops, or mines. Requires detailed knowledge of how individual workplaces operate, innovation, better management practices, and productivity improvements. The command economy was unable to create intensive growth.
Why couldn't the Soviet system produce intensive growth?
Central planning agencies, even at regional level, did not have detailed information about how individual factories actually worked. They couldn't identify inefficiencies or implement improvements at the factory floor level. Factory managers had incentives to meet production targets, not to improve efficiency. The system that had been effective at building new capacity was ineffective at making existing capacity work better.
As a result, the Soviet system never solved the inefficiencies that had emerged in the 1930s when the system was first established. These inefficiencies became increasingly problematic as the economy matured and opportunities for extensive growth diminished.
The impact of oil prices
One of the paradoxes of the 1970s Soviet economy was that growth rates were declining yet living standards were still rising. High international oil prices explain this contradiction.
How oil masked economic problems:
- In the early 1970s, international oil prices rose dramatically
- The Soviet Union, as a major oil producer, could make more money from selling oil abroad
- Oil production increased substantially: from 243 million tons in 1965 to 603 million tons in 1980
- This was driven by international demand and high prices
Economic benefits:
The oil revenue allowed the Soviet government to:
- Continue importing grain from the West to feed its population (showing the failure of Soviet agriculture)
- Borrow money from Western governments, using oil income as collateral
- Maintain and even improve living standards despite declining economic growth
The fundamental problem:
This situation was unsustainable. The Soviet economy was essentially living on borrowed time, using oil wealth to cover up fundamental economic weaknesses rather than addressing them. When oil prices eventually fell, these underlying problems would be exposed.
Overall assessment: The Soviet economy, 1964-85
Economic reforms were minimal:
- Brezhnev essentially accepted the Soviet economy as it was
- Rather than trying to improve the system, he attempted to lower expectations
- The brief Kosygin reforms were quickly abandoned for political reasons
- Fundamental features remained unchanged: central planning of industry and collectivisation of agriculture
Andropov's limited attempts:
- Andropov did try to address economic decline through his discipline campaigns
- However, he too remained committed to the essential features of the system
- He believed the system was sound but needed better implementation
- His reforms focused on worker behaviour rather than systemic change
The underlying reality:
Between 1964 and 1985, Soviet leaders failed to address the fundamental problems of the economy. The shift from the "golden age" of the 1950s (high growth, large harvests, technical successes) to economic stagnation was never reversed. Growth rates declined, military spending increased, and the government was forced to import grain to feed its citizens. The Soviet Union remained a dysfunctional economic giant - capable of producing a massive nuclear arsenal but unable to grow enough food to feed its own people.
Key Points to Remember:
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Economic policy phases: Reform (1954-64) gave way to restoration and management (1964-85) as reform was discredited after Khrushchev's failure
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The Kosygin reforms failed due to political fears after the Czechoslovakian rebellion (January-August 1968), showing how politics trumped economic logic
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Nuclear parity was achieved by 1970 but at significant economic cost, draining resources from consumer goods and agriculture (military spending rose from 11% to 13% of GDP)
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Developed socialism replaced Khrushchev's promise of Communism by 1980, accepting more modest goals of job security and low prices
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Economic decline was fundamental: The command economy could produce extensive growth (new facilities) but not intensive growth (improved efficiency), causing growth rates to fall from 7.1% (1950-58) to 2% (1970s)
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High oil prices in the 1970s masked economic problems by allowing grain imports and borrowing, but this was unsustainable and hid rather than solved underlying weaknesses