Ask Lemmygrad

Yuri Andropov was Gorbachev's mentor, and he patronized him through the ranks of the Soviet hierarchy. He was the original proponent of the series of reforms that later became Perestroika. However, there is reason to believe that, had he lived, he would have implemented Perestroika in a much more controlled, thoughtful, and conservative way. Andropov was highly concerned with the financial war that the Americans were engaging against the eastern bloc countries, and when he referenced reforms, it was always in reference to the Soviet financial situation. Here's a passage from Vladislav Zubok's Collapse:

When Brezhnev appointed him as his successor, Andropov knew that he would inherit huge problems. Soviet troops were in Afghanistan, détente with the West had failed, and Ronald Reagan was in the White House. In Poland, workers were demanding lower prices for food, and, with the help of dissident intellectuals, had created the Solidarity movement back in 1980. This time Andropov concluded that Soviet tanks could not help. The Polish state accumulated $27 billion of debt to Western banks, which came with high interest. The Soviet Union was unable to bail out its Eastern European client. In a conversation with the head of the East German secret police, the Stasi, Andropov informed him that the West was waging a financial war against the Soviet bloc. Washington had tried to block the construction of a new Soviet gas pipeline to Western Europe, a major source of currency for Moscow. Andropov added that American and West German banks “have suddenly stopped giving us loans.”11 The Soviet Union could fall into the same financial hole in which Poland already found itself.

The first thing the new Soviet leader did was to destroy “the rust” in the Party-State apparatus. The KGB arrested several top men in the Soviet “shadow economy” that, some estimated, accounted for 20–25 percent of GDP. In the Moscow trade system, the top of the criminal pyramid, over 15,000 people were prosecuted, among them 1,200 bureaucrats. He also prosecuted corrupt clans in the Soviet republics; the largest case was the “cotton affair” in Uzbekistan, which had divested the Soviet budget of billions of rubles and involved the entire Party bureaucracy. Andropov also used police methods to restore work discipline across the country.

All this was merely preparation for the next stage. Andropov now ordered the Economic Department of the CC CPSU (Central Committee of the Communist Party of the Soviet Union) to map out a road toward economic reforms. His choice to lead this effort was fifty-three-year-old Nikolai Ryzhkov, former director of a huge military plant, then the head of Gosplan (the State Planning Committee that set goals for the Soviet economy). Ryzhkov recalled Andropov’s instructions: “Let the Party apparatus mind their business, and you should tackle the economy.” Ryzhkov recruited a team of economists and sociologists who had been involved in the economic reforms of the 1960s. (All of them will feature in subsequent chapters of this book.)14 “For years,” Ryzhkov remembered, “those people had been working in a vacuum, multiplying one abstract theory after another. And suddenly their ‘heretical’ thinking was in demand at the very summit of power.”

In January 1983, Andropov met with Shakhnazarov again, at a conference. The Soviet leader said to his former consultant, “You know, we have only begun to deploy reforms. A lot needs to be done. We should change things radically, fundamentally. You always had some interesting ideas. Come to see me. We should talk . . .”

Andropov, just like Deng Xiaoping in China at the time, realized that modernizing the Soviet economy would require Western technology, know-how, and capital. He once asked Ryzhkov what he knew about the reforms of Lenin’s New Economic Policy (NEP) in the 1920s. Was it possible, for instance, to lease Soviet economic assets to foreign companies? Ryzhkov said he knew nothing about this. Andropov responded: “Neither do I. Do research on this, and come back.” Finally, somebody found a history thesis on this subject, buried in Moscow’s central library.

Andropov was keenly aware that the Cold War rivalry with the West, as well as the existing imperial burden, clashed with the Soviet need for renovation. “The most complex problem,” Andropov confessed to Erich Mielke, head of the Stasi, in 1981, “is that we cannot avoid the strains of military expenditures both for us and the other socialist countries.” He also could not give up on Soviet clients, such as Vietnam and Cuba, as well as “progressive forces” in Laos, Angola, Ethiopia, and other countries. Without this burden, Andropov said, “we could solve all the other problems in two or three years.” Also, Reagan’s belligerent course in foreign policy remained the main challenge for Andropov’s reforms. In March 1983, Reagan launched an ambitious Strategic Defense Initiative (SDI) to stop incoming Soviet missiles; the US military complex was flushed with money. American financial resources seemed unlimited. The NATO members, Japan, and the Arab states helped fund the American state debt and budget, including military expenses. The Cold War balance was shifting in favor of the United States.

In contrast, Soviet revenues and finances were precarious. The problem, contrary to customary Western claims, lay not in the “crushing” defense outlays. The Soviet military, the military-industrial complex (MIC), and R&D were remarkably cost-effective; according to the best available estimates, they never exceeded 15 percent of GDP. A leading Western expert on the Soviet economy admitted, long after the Soviet collapse, that nobody in the leadership “saw the Soviet Union being crushed under an unbearable military burden.” In economic terms, this expert acknowledged, “the Soviet Union had a revealed comparative advantage in military activities.” It was not the military burden, significant yet small for a superpower, that endangered the Soviet economy and state.

The problem was the growing Soviet engagement with the global economy and its own finances. The Soviet balance of trade depended entirely on high oil prices. The debonair Brezhnev, in contrast to Stalin, had never bothered to accumulate a stabilization fund, to save money for the future. At the Party Plenum of November 1982, Andropov denounced the growing Soviet import of grain, fats, meat, and other food products. “I don’t want to scare anyone but I will say that over recent years we’ve wasted tens of billions of gold and rubles.” Instead of using its oil profits to import Western technology, the Soviet Union used them to import food and subsidize its satellites. Poland at least could have expected the Soviets to help them out with Western debts. If the Soviet Union were to be engulfed in debt it too would be left to its own devices, and the United States would take advantage of this. Andropov spoke ominously about the “currency war” that the Americans were conducting against the Soviet bloc countries. The secret data on the imports and other profligacies of Brezhnev’s rule were released to the Party activists of the key Soviet institutions.

At the Politburo on 30 June 1983, Andropov returned to the topic of the newly vulnerable position of the Soviet Union vis-à-vis global economic and financial markets. “Our import has been growing, but we buy a lot of rubbish, instead of technologies. Western countries take our resources, but the rest of our products cannot compete.” The Soviet leader ordered the Gosplan and ministries “to think” about increasing the export of machinery and oil products. Instead, the Soviet republics and state enterprises asked for more subsidies. “They do not count money, do not seek additional financial resources, they got into the habit of begging.” Andropov proposed cuts in imports of foreign food. He also planned to gradually reduce Soviet subsidies to Eastern European countries, Mongolia, and Cuba. “This is not a community,” he said with some emotion to Ryzhkov about the Soviet economic bloc. “This is a vulgar robbery.”

Cont -