IB History Economic Impact of Cold War Notes

The Economic Impact of the Cold War on the Soviet Union

Military Spending and the Defence Burden

1. The USSR devoted an estimated 25% or more of GDP to defence throughout the Cold War, compared to approximately 6-7% in the USA, creating an enormous structural burden on the economy.
2. The military-industrial complex consumed the best scientists, engineers, and raw materials, starving the civilian economy of talent and resources.
3. Defence spending was a state secret, hidden across multiple budget categories, meaning even Soviet planners struggled to understand its true economic impact.
4. Millions of workers were employed in closed cities dedicated to weapons production, creating communities entirely dependent on military contracts with no capacity for economic diversification.

The Arms Race

1. The nuclear arms race began with the Soviet atomic bomb test in 1949 and escalated through hydrogen bombs, ICBMs, and MIRVs, each requiring massive investment.
2. By the 1980s, the USSR maintained a nuclear arsenal of over 40,000 warheads, along with vast conventional forces, submarines, and bomber fleets that required continuous funding.
3. Reagan's Strategic Defence Initiative (SDI) in 1983 threatened to neutralise Soviet missiles, potentially forcing the USSR into a new round of spending it could not afford.
4. Arms limitation treaties such as SALT I (1972) and SALT II (1979) offered limited relief, but the fundamental dynamic of competitive military spending continued until the late 1980s.

The Space Programme

1. The Soviet space programme was closely linked to military missile development, with achievements like Sputnik (1957) and Gagarin's flight (1961) serving dual propaganda and strategic purposes.
2. Space investment produced technological spin-offs in materials science and computing, but these rarely transferred to the civilian economy due to the secrecy surrounding military research.
3. The cost of maintaining a competitive space programme became increasingly difficult to justify as economic stagnation set in during the 1970s and consumer shortages worsened.

Comecon and Eastern Bloc Subsidies

1. The USSR subsidised its Eastern Bloc allies through Comecon (Council for Mutual Economic Assistance), selling oil and gas below world market prices to maintain political loyalty.
2. These subsidies cost the USSR an estimated billions of dollars annually, effectively transferring Soviet wealth to countries like East Germany, Poland, and Cuba.
3. In return, the USSR received manufactured goods from Eastern Europe, but these were often of lower quality than what was available on world markets, limiting the economic benefit to the Soviet Union.
4. Maintaining military forces across the Warsaw Pact added further costs, with Soviet troops stationed in East Germany, Poland, Czechoslovakia, and Hungary.