Economic Factors Notes

Key Questions

1. What caused economic problems in the USSR and how did this lead to a reduction in military spending?
2. Why did economic decline in Eastern Europe lead to the rise of ideological challenges and dissent?
3. What was the impact of Gorbachev's economic reforms?

Economic problems in the USSR

1. Economic Weakness of the Soviet System

1. By the 1970s and 1980s, the Soviet economy was suffering from long-term structural problems caused by central planning and lack of market incentives.
2. State control over production led to inefficiency, poor quality goods, and chronic shortages of food and consumer products.
3. The economy prioritised heavy industry and the military at the expense of housing, agriculture, and consumer welfare.
4. Low productivity and outdated technology meant the USSR fell behind the West in innovation and living standards.
5. These weaknesses reduced public confidence in communism and increased pressure for reform.

2. The Cost of the Arms Race and the Need to Reduce Military Spending

1. The Cold War arms race placed an enormous financial burden on the Soviet economy.
2. A very high proportion of Soviet GDP was spent on defence, including nuclear weapons, conventional forces, and maintaining control over Eastern Europe.
3. Competing with the USA in advanced military technology, especially after Reagan’s military build-up and SDI, proved economically unsustainable.
4. Money spent on weapons could not be used to improve living standards, infrastructure, or consumer goods.
5. By the mid-1980s, Soviet leaders accepted that continued military competition threatened the survival of the system itself.

3. Falling Oil Prices and Declining State Income

1. The USSR relied heavily on oil and gas exports to earn foreign currency.
2. In the early 1980s, global oil prices fell sharply, reducing Soviet export income.
3. This limited the USSR’s ability to import Western technology and grain.
4. Reduced state income worsened economic stagnation and made reform increasingly urgent.
5. The loss of revenue highlighted the vulnerability of the Soviet economy to global market forces.

Economic decline in Eastern Europe

1. Causes of economic decline

1. Communist states in Eastern Europe also experienced serious economic decline during the 1970s and 1980s.
2. Many countries faced high debt, inflation, and declining industrial output.
3. Governments struggled to provide basic goods, leading to widespread public dissatisfaction.
4. Economic failure undermined the credibility of communist ideology, which claimed to deliver equality and security.
5. Eastern European economies increasingly compared themselves unfavourably with Western Europe, intensifying resentment.

2. Economic Decline and the Rise of Ideological Dissent

1. Economic hardship encouraged the growth of opposition movements, particularly among workers and intellectuals.
2. In Poland, rising food prices and shortages contributed to the formation of Solidarity, which combined economic demands with political reform.
3. Dissidents increasingly questioned the legitimacy of one-party rule and demanded democracy and civil liberties.
4. Economic failure exposed the gap between communist ideology and lived reality.
5. This weakened loyalty to the system and strengthened popular resistance.

Gorbachev's economic reforms

1. Gorbachev’s Economic Reforms and Changing Priorities

1. Mikhail Gorbachev recognised that economic reform was essential to save the Soviet system.
2. He introduced perestroika to restructure the economy by reducing state control and increasing efficiency.
3. Reform required a reduction in military spending and a more peaceful international environment.
4. Gorbachev believed economic recovery depended on cooperation with the West, not confrontation.
5. This led directly to policies of arms reduction and improved relations with the USA.

2. Reducing Control Over Eastern Europe to Cut Costs

1. Maintaining control over Eastern Europe was economically expensive for the USSR
2. The USSR subsidised Eastern European economies through cheap energy and financial support.
3. Gorbachev ended the Brezhnev Doctrine, reducing the economic and military burden of intervention.
4. This allowed Eastern European states to pursue reform and eventually abandon communism.
5. The loss of Eastern Europe further reduced Soviet economic and political power.

3. Economic Factors and the End of the Cold War

1. Economic weakness made continued Cold War rivalry unsustainable for the USSR.
2. The need to reduce arms spending pushed Soviet leaders toward negotiation and arms reduction treaties.
3. Economic failure undermined belief in communist ideology both inside the USSR and across Eastern Europe.
4. As communist systems collapsed economically, they also collapsed politically.
5. By 1991, the Soviet Union dissolved, and the Cold War ended largely because economic pressures made competition impossible.