There is widespread agreement that Gorbachev initiated important steps towards democratization and the introduction of a private sector in the Soviet Union, despite its collapse following the August 1991 putsch. In Discussion Paper No. 628, Research Fellow Gérard Roland uses the `sequencing tactics' framework which describes a four-phase process of democratization, privatization, liberalization and restructuring to analyse the course of transition in the Soviet Union since perestroika. Gorbachev initiated the first two stages, but he failed to take advantage of the momentum created by the progress in democratization and in the growth of private activity. Conservative opposition was too strong to permit price liberalization, which could have been achieved had the economy continued along a path of relative macroeconomic equilibrium.

Roland argues that Gorbachev was responsible for significant macroeconomic mismanagement, for which he has rightly been blamed. The resulting loss of control over macroeconomic equilibrium reinforced the dislocation of the command system and hence brought forward the need to decide whether to liberalize prices or to strengthen state controls. Roland argues that Gorbachev could proceed with neither, which provoked increased polarization between conservative and reformist forces and increased nationalist sentiments in the republics. These eventually undermined his own position and lost him all the popular support he had gained from glasnost.

Roland stresses the urgent need for price liberalization to remove all suspicions about who is subsidizing whom: otherwise quarrels over terms of trade will lead very quickly to a retention of exports by all the republics. They all face heavy transition and stabilization costs and their individual shares in the overall cost of transition are hard to identify. The resulting incentives for each republic to shift some of its transition costs on to others may lead to a dangerous, sustained stalemate and prolonged delays in implementing reform programmes. Cooperation among the republics is unlikely, and its absence will probably have disastrous economic consequences. Roland therefore concludes that very generous but conditional help from the West will be required in order to create the necessary incentives for economic and monetary cooperation among them.

The Political Economy of Transition in the Soviet Union
Gérard Roland

Discussion Paper No. 628, January 1992 (IM)