Death of the empire. Part II.

3 Causes of the instability of authoritarian regimes

3.1 Instability

The cause of instability of authoritarian regimes is the lack of legitimacy and primitive structure of the state.

One option to fight the challenges of instability in authoritarian regimes is the closed, or managed, democracy, when de jure democratic institutions and procedures are retained, but the ruling elite establishes principles of the continuity of power, controls elections and determins their results. This is a dead end (see Italy, Japan, Mexico).

Another option is the formation of totalitarian structures. Authoritarian states want their citizens to stay aside of public politics, avoid demonstrations and rallies, not contact foreign press, etc. On the other hand, totalitarian regimes control the private life of citizens. A messian-type ideology is typical for totalitarism.

3.2 Mechanisms of the fall of authoritarianism

Crisis of legitimacy, lack of trust (even among police and army). Opposition can use simple slogans (re-distribution, nationalism) which are difficult to refute.

Nothing guarantees, however, that the fall of an authoritarian regime results in the creation of stable democracy. External influences are important here. In Eastern Europe: influence of the EU, chances to become a member of EU. In Latin America: influence of USA.

4 The oil curse.

4.1 Resource wealth and economic development.

There is a reverse proportion between long-term economic growth and the amount of natural resources.

Abundance of natural resources gives the ruling classes a way to increase budget not caring about the increase of taxes, that is without a dialogue with the society. Since only such dialogues allow to build the rules of the political play and launch modern mechanisms of the economic growth, there are less limitations on corruption and arbitrariness in the countries with rich resources.

The distribution of profit in resource-rich countries depends on the experience in bribery, not on the market mechanisms.

Resource wealth increases risks of political instability, connected with the struggle for the re-distribution of profits.

A typical feature of resource-rich countries is lack of attention towards problems of education. Probably, due to the specific demand for work force in the mining companies and other companies producing raw materials.

Highly volatile prices on raw materials are a problem for the economy of such countries.

4.2 Specific features of the oil market

When most market players believe that the oil prices will stay high for a short period only, they will stay so. When the opinion prevails that the high prices are a new stable level for a long period, the prices will fall

4.3 Regulation of the oil market in the XX century

Market was split in 1928 by 7 largest corporation -- agreement of Achnacarry. Cannon boat diplomacy, exploitation of less developed countries.

1960 -- OPEC.

1974 -- oil crisis, growing prices. Decrease of oil consumption in the importing countries led to the decrease of demand in 1981 and the sharp fall of prices in 1986.

4.4 Challenges linked with the fall of the raw materials prices: Mexico and Venezuela.

Mexico. Was a closed democracy in 1970-1990. Share of the state expenses in the GNP was growing. The foreign debt increased. When the prices fell -- tax growth, budget expenses cut, currency devaluation.

Venezuela. Stable democracy. Control over the growth of the national currency rate. Populists come to power in 1974. By 1989 Venezuela has 84% inflation and the foreign debt equal to 54% of GNP. Labor productivity falls. Defaulted foreign debt. Chavez comes to power in 1992.

4.5 Response to the threats of the prices volatility

Hedging and forward contracts are political risks for the government. Two kinds of stabilization funds: protection of the national economy from the oscillation of prices and the fund for future generations.

In the non-democratic countries there is high risk of corruption in the stabilization fund management and/or ineffective investments.

Stabilization funds are an easy target for the opposition in democratic countries. Even in Norway, under effective democracy, a coalition in power never won the elections since the stabilization fund was created.

5 Crevices in the foundation. USSR in early 1980s

5.1 Ineffectiveness in stability

Social stability is the typical feature of the Brezhnev's epoch. 7 out of 9 mass protests against the regime took place in the first years of Brezhnev's rule. In 1969-1977 there were none. In the times of Khrushchev, the government used armed troops against the discontent in 8 cases out of 11. In the years of Brezhnev's rule -- only in 3 cases out of 9. Since 1968 till Brezhnev's death weapon was never used against the protesters.

Mass construction of living buildings (instead of earlier "communal apartments") and personal garden-plots (dachas) for growing vegetables and fruits resulted in loss of the total control over the personal life of the citizens.

Changes of the information field. In 1950 only 2% of Soviet people had radio receivers with short wave bands. By 1980 -- 50%. From a KGB report of 1976: "A significant share of the persons who committed politically harmful misdemeanours were under foreign ideological influence. The main factor was propaganda by radio. 80% of university students and 90% of undergraduate schoolchildren listen foreign radiostations regularly (32% of univesity students and 59% of schoolchildren listen them 1-2 times a week and even more often." A report of 1970: "5 years ago most of illegal printed materials were ideologically vicious fiction books, but now we see widely popular political documents and programs. Since 1965 we were aware of about 400 books and articles which criticize the historical experience of building of communist in the USSR, revising the politics of the CPSU, offering oppositional political programs."

5.2 Growing problems and wrong solutions

1930s-1950s -- redistribution of labour resources from rural areas to the cities. In 1960s the flow of labour force decreased.

1965: more rights given to the factories and other enterprises, the salary now depends not only on the personal input, but also on the financial results of the whole enterprise.

Ineffectiveness of Soviet system: USSR produced 8 times more iron ore than the USA, made of this ore 3 times more cast iron, which was processed into 2 times more steel. From this steel the same amount of tools and machines was produced. Consumption of raw materials and energy per a production unit was 1.6 and 2.1 times more correspondingly.

After the chemical weapons were prohibited, the factories involved into this production had to be used somehow. Millions of people became victims of food contaminated with insecticides and other poisons.

The command system of management created in 1930s-1950s was based on fear of severe punishment. After Stalin's death in 1953 the discipline quickly falls.

Alcohol. The share of alcohol consumed in socially controlled places (restaurants, caffees, etc.) was 5.5% vs. 50-70% in developed countries. In 20 years consumption of alcohol grew 2.2 times, number of crimes committed under alcohol intoxication grew 5.7 times, the number of people suffering from alcoholism -- 7 times.

Loss of the effectivity of the communist ideology. The ideological dogmata were not taken as seriously as before. They were either dismissed or ridiculed out. Deintellectualization of the CPSU led to gerontocracy.

5.3 Problems of the food supply

Socialism is the economy of deficit. Since late 1960s shortages grow. In late 1980s shortages turned into a crisis.

The problem of the food supply of the cities was faced by the tsarist government before the WWI. The revolution was a corollary. Bolsheviks solved the problem with prodrazvyorstka (food expropriation). In the late 1920s the problem became important again. Stalin's solution was chosen: dekulakization, collectivization, prodrazvyorstka.

In Europe the period of the industrial growth was preceded by the agrarian revolution (sharp growth of the effectivity of the agriculture). In Russia, the agrarian revolution never happened, but the agriculture grew steadily and the country was the largest exporter of food.

Collectivization and deprivation of kolkhoz members of their right to choose the place to live and work, nonfree non-payed work were equal to restoration of serfdom, but now the state from one of the exploiters became the only one. Hence, the labour ethics distorts: work becomes a burden to avoid.

Social position of the peasants was intentionally low. Annual income of a kolkhoz member was close to a monthly salary of a factory worker. The socialist model created motives for the smartest and the most energetic peasants to move to a city, in spite of the bans to do so.

5.4 Food shortage: strategic challenge

Options: additional investments in the traditional agricultural regions, Nechernozemye (non-Black Soil Belt); developing of virgin lands; liberalization and de-collectivization. The first option was proved to be ineffective later in 1970s-1980s. The second option was chosen, in spite of the predicted instability of the harvest.

After 1958 growth of harvests stops. In 1963 the harvest was significantly lower than before. In 1953-1960 the reserves of grain decrease. Capital expenditures grow. Social degradation led to the low effectiviness of agriculture. Since 1971 till 1985 capital expenditures were 579.6 billion rubles. The result was zero.

5.5 USSR as the largest food importer

Contrary to the market economy, in the socialist economy it was impossible to raise the retail prices, it would be a violation of the social contract between the state and the people. The rulers, caring primarily of their own security, rejected the use of terror, typical for the earlier years and the fear of the state decreased among the general population. Now the neglection of social programs led to the conflicts, like in Novocherkassk in 1962. From a KGB order: "In the first half of 1962 7705 anti-Soviet leaflets were registered, two times more than in the first half of 1961. After the prices were raised, the flow increased. Only in June there were 83 occasions of different anti-Soviet leaflets and graffiti. In the same period, more than 300 anti-Soviet anonymous letters received by the party and Soviet organizations and newspapers were reported to KGB. In these letters, people express their discontent with the low quality of life, and call to mass protests, strikes, rallies, boycotts demanding for the increase of salary and decrease of prices."

Growth of forced savings (the people could not find goods to spend the money and had to save them): 1970 -- 17.5 billion rubles, 1980 -- 29 billion rubles, 1985 -- 60.9 billion rubles.

Eventually, the prices grow even in the socialist economy. In 1981-85 prices on bread grew by 6.6%, on potato -- by 7.9%, on cotton fabrics -- by 17.9%, on TVs -- by 10%. In 1979 prices on luxury goods grew: on gold -- by 50%, on silver -- by 95%, on fur -- by 50%, on carpets -- by 50%, on cars -- by 18%.

Non-equal and unjust distribution of goods: in Moscow and Leningrad 97% of people bought food in the state shops (the prices there were lower than on the markets where kolkhoz members sold their product), in the capitals of Soviet republics -- 79%, in oblast centres -- 36%. The higher was the income of a family, the better access to cheaper food they had.

Grain supplies to the socialist countries. Only in 1963 the grain crisis forces the USSR to stop the supplies to the socialist countries and to buy wheat abroad. One third of the gold reserve was spent on wheat (372.2 tons of gold). In 1965 -- 335.5 tons more. In 1907-1913 Russia was the largest exporter of grain (45% of the world market). By 1980s USSR became the largest importer (16.4% of the world market). There is not enough gold to buy grain and the industry is not competitive to increase export of machines. Hence, USSR takes credits.

5.6 Oil of the West Siberia. Illusion of rescue

Year	Production of oil in the Western Siberia, mln.tons
1965	1
1966	2.8
1967	5.8
1968	12.2
1969	21.3
1970	31.4
1971	44.7
1972	62.7
1973	87.7
1974	116.4
1975	148.0
1976	181.7
1977	218.3
1978	254.1
1979	283.5
1980	312.6
1981	334.3
1982	352.9
1983	370.1
1984	377.9

Increase of oil production and the growth of oil prices in 1973-74 and in 1979-81 gave a chance to stop the food crisis, to increase import of machines and tools, consumers goods, provided the financial base of the arms race, allowed to achieve parity of nuclear weapons with the USA and to start the campaigns like the war in Afghanistan.

Being certain that the high prices on oil are stable, USSR did not create any financial reserves and borrowed additional foreign credits. In 1979-1981 three successive low harvests result in the deficit of the foreign trade. In 1980s oil prices stop growing. Shortage of consumer goods increases, monetary emission grows, retail prices grow. Shortage of food is compensated with their lowering quality (like decreasing percentage of meat in sausage, etc.). Since mid-1970s about one half of the trade growth was produced by lowering quality of goods and increased prices. The report was prepared and given to the chairman and the vice-chairmen of the Council of ministers, but it was confiscated and destroyed on the next day.

In 1982 the government of Poland asks for assistance. in 1980-81 the financial aid was 4 billion rubles. In 1982-83 an additional 2.7 billion rubles credit was issued.

5.7 Falling oil prices: the last strike

Autumn 1981: oil supplies to the Eastern Europe are cut by 10%. In 1985 oil production begins to decrease. Supplies to the Eastern Europe continue, but the export to the West decreases. In 1984 the Academy of Sciences predicts stabilization of the oil prices, but in 1985 they plunge.

5.8 Dissolution of the USSR: unexpected and logical

In the 1970s-80s nobody foresaw the fall of the USSR. The opinion of the daemonic omnipotence of CIA and its role in the fall of the USSR, so widespread in modern Russia, is a mirrored reflection of the point of view prevailing in Washington that in the late 80s-early 90s the CIA demonstrated extreme incompetence in everything related to the USSR and Russia.

The second version of what caused the dissolution of the USSR is the intensification of the arms race, imposed by Reagan. It is impossible to estimate the real scale of military spendings in the USSR, the data are irreconcilable. Besides, it is not clear whether the prices on military equipment were based on the economic reality in any degree. To understand whether this version is valid, one should understand how the decisions were made in the USSR. The evidences that the USSR increased military spendings since early 1980s are not convincing enough. The volume of military production was not determined by the necessities and military plans, but by the available industrial units.

Gorbachev's aide Shakhnazarov once asked: "Why should we produce so much weapons?" The General Staff commander Akhromeyev replied: "Because we have built first class factories, not worse than what the American have. Would you order them to produce tin pans?"

From the military and strategic point of view, the Western experts who monitored the production of tanks in the USSR, could only conlude that the Soviets plan an offensive war. In reality, the occasion behind this decision was the certainty that should the war with the USA begin, Americans will quickly raise the production of tanks, and the losses of Soviet tanks in the first stage of war will be extremely high. The main cause, however, was that the factories were built and the workers must have job to do. The same happened to the SS-20 missiles. The decision to produce them inevitably led to the reaction of the West -- placement of missiles in the Western Europe and increase of the threat to the USSR. After all, USSR had to agree to cut the number of missiles, when huge resources had already been spent.

By 1985 the roots of a deep crisis were already prepared in the USSR. The Soviet authorities were still sure in the stability of the Soviet economy. When the new leaders came to power, it took about three years to understand the situation. But it was already too late.