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The Consequences of Communism

July 8, 2007

The American Enterprise Institute has a paper by Yegor Gaidar. It details the main concept of his recent book looking into the reasons that the Soviet Union fell. The conventional wisdom on why the Soviet empire collapsed was due to the weapons buildup of the 80s. Reagan spent a tremendous amount of money on expanding the conventional military forces of the U.S.; this forced the Soviets to match expenditures they could not afford. This is was not even half the story.

Gaidar explains how the Soviet Union could not continue funding the Soviet state from it’s once large oil revenues. The Soviet Union had expanded it’s oil industry throughout the 1970’s, a decade of record high oil prices. The Soviets however could not effectively maintain that investment without the high prices of the 70’s. The Soviet leadership was hit by the twin issues of declining output, due to earlier overexpansion in addition to declining reserves in the field and collapsing oil prices. The Soviet Union had less oil that they could only sell at bargain prices. This collapse came at an exceptionally bad time. The Soviet invasion of Afghanistan and poor agricultural production had provided a tremendous cash crunch on the state. Once Saudi Arabia stopped propping up oil prices in 1985, the end was rapidly approaching. The Soviet Union could not feed it’s people. The state collapsed in less than seven years. The gross incompetence of the Soviet leadership was breathtaking. Gaidar breaks this down in greater detail. I feel good leadership could have only slowed the problem by the mid 80’s; by this point the USSR was rapidly on its way to breakup.

I think this article serves several purposes. First, it is a fresh look into the downfall of the Soviet Union. I have always had an interest in Soviet history and took an avid interest in my undergraduate days. It also highlights the tremendous economic problems of a communist system. There is no good way to understand how an economy runs whereas prices serve this function in a capitalist system. The Soviet leadership would just push for more oil at declining returns because they could not get enough money to stop all of the shortages. They failed to brace against the prospect of declining oil prices and the empire collapsed due to lack of funds. They were divorced from the realities they faced and paid the ultimate price.

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