Published: Apr 2014

Perestroika is a Russian word which entered dialects around the globe in the late 1980s when the Soviet Union began its transformation from a socialist state into a free market capitalist country. Literally meaning ‘restructuring,’ Perestroika first fell from the lips of Mikhail Gorbachev in 1985 alongside its partner ‘Glasnost’, which means openness. Together, Perestroika and Glasnost laid down the platform for reform which would ultimately lead to the collapse of the Soviet Union.

The Soviet Union already faced many challenges when Gorbachev assumed the Soviet leadership. The centrally planned Soviet economy was in decline. Military spending was high – equating to circa 25% of Soviet GDP and 70% of industrial output. Soviet society was suffering from a decline in living standards with a general shortage of basic supplies. Civil unrest was the natural by-product of this decline and was further fuelled by nationalism and the advancement of technology which allowed Soviet people a glimpse of the prosperous capitalist world beyond the iron curtain.

The Soviet economy

The story of Perestroika actually begins decades prior to Gorbachev’s tenure, in the infancy of the Soviet Union. Officially formed in 1922 by the Bolsheviks, led by Vladimir Lenin, the Soviet economy began to take its true shape following the rise to power of Joseph Stalin. Heavily influenced by the vision of both Lenin and the economist Karl Marx, Stalin implemented an ideology which committed the Soviet Union to a centrally planned top down economy. The Soviet government owned and controlled all aspects of the economy. Private ownership was prohibited and all goods manufactured were utilised by the government. Five year plans implemented by Gosplan, the State Planning Commission, directed the economy – setting targets for Soviet enterprises. Supplemented by an annual plan, the Soviet government allocated materials and funding to each sector of the economy and determined what, when and how much of a product would be created and its value.

Under Stalin the Soviet economy underwent a dramatic transformation, industrialising at an unprecedented level. For Stalin the Soviet Union was 50 to 100 years behind the rest of the world and needed to catch up in ten years or face extinction. To achieve this, Stalin implemented a ‘big push’ for the economy, driven by heavy industry, collectivised agriculture and the production of capital goods.

Stalin’s push worked. The economy boomed, transforming the Soviet Union into an industrial giant. And even though the devastation of World War II put a temporary halt to Soviet economic growth, in the wake of the conflict, recovery was swift. Driven by the centrally-planned economy and continued industrialisation, output soared and the Soviet Union posted average yearly growth of around 10% between 1950 and 1960 which, according to Soviet statistics at the time, outpaced that of the United States.

Cracks under the surface

From the outside looking in, the 1970s Soviet Union appeared to be a political, economic and militaristic powerhouse. In some respects this assessment was true, but cracks were beginning to appear. In reality, the Soviet Union had reached its economic zenith in the late 1960s, and in the following decade it began to stagnate.

“There was always a problem with the state run economy,” states Mike Bowker, Senior Lecturer in Russian History at the University of East Anglia (UEA), “and at this time it could not cope with the changes internally and internationally.” Soviet central planners were beginning to struggle with the vastness and complexity of the country’s economic system, which had already reached its peak, and action was needed to maintain the levels of production and growth.

Soviet leader Leonid Brezhnev however, assumed the premiership promising to retain the status quo. Only limited economic reforms were therefore introduced early in his tenure which were often mismanaged and underfunded. “The commitment to the reforms was always doubted,” says Bowker, “and because of this they faded out and failed to reinvigorate the economy.” As a result Soviet industry was unable to modernise and intensify production, output stalled from 1979-82 and the economy began to cripple.

Brezhnev’s New Social Contract also played a role in the stagnating economy. Promising Soviet society employment, wages, accommodation and social security, the Contract killed social mobility. Therefore, Soviet people no longer had any incentive to work hard, other than to hit the targets set by Gosplan. As a result, productivity and quality were reinforced as secondary objectives for the Soviet workforce and begun to decline, causing further economic trouble for the country.

Enter Gorbachev

On 11th March 1985, 54 year old Mikhail Gorbachev assumed the role of General Secretary of the Soviet Union. Gorbachev was the first leader of the Soviet Union born after the revolution and was regarded by many as a leader with the potential to bring change. Facing a tidal wave of problems, Gorbachev quickly realised that the old policies were not working. He soon denounced the policies which had gone before him and laid out his own roadmap for restructuring.

Perestroika was first mentioned in Mikhail Gorbachev’s economic report just a few days into his tenure. However his initial attempts at reforms sought to accelerate the economy through investment in industry. These produced little results as they repeated the fatal error of previous measures – failing to address the structural problems at the heart of the faltering economy. As a result, his policies became more radical throughout his tenure.

It wasn’t until the January 1987 Plenum of the CPSU Central Committee that Perestroika was announced as an official state policy. Together with Glasnost, Perestroika outlined Gorbachev’s third way in which he sought “resolute and radical elimination of obstacles hindering social and economic development of outdated methods of managing the economy and of dogmatic stereotype mentality.” He believed this would “resolutely reverse the unfavourable tendencies in the developing of the economy, to impart to it the due dynamism and to give scope to the initiative and creativity of the masses to truly revolutionise change.”

UEA’s Bowker sees Gorbachev’s policies at this time as an “attempt to reform the system, not overthrow it. His main idea was to introduce the efficiency of a market based system which had the social conscience of socialism. It was a last chance saloon for Soviet style socialism.”

Perestroika is often attacked as a vague term which promised a lot but offered few elements of practical policy. To a certain degree, this may be true. The Soviet government often changed and adapted the meaning of Perestroika as conditions in the Soviet Union shifted. There were, however, a number of quantifiable policies which were introduced – these, Bowker says, “in hindsight may seem insignificant but at the time were fairly revolutionary.” The first of these was the Law of State Enterprises; passed in 1987, which was introduced to remove the grip of central planners over the productive elements of the Soviet economy. It allowed enterprises to adopt free market methods and adjust their levels of output according to supply and demand. State orders however still needed to be fulfilled and inexperience of private management led to a number of issues such as inter-enterprise debt and the failure to pay taxes, which ultimately caused more harm than good.

A year later, the Law on Co-operatives was passed, expanding the co-operative sector to include privately owned ventures which were treated under the laws as state owned businesses. Privately owned restaurants, shops and salons soon began to flourish under the new policies, lining the streets of the major Soviet cities and offering a better service than their state-run counterparts. Furthermore, foreign trade was no longer monopolised by the government and limited foreign investment was granted in the form of joint ventures. Red tape however often made this problematic.


The decentralisation that these policies created ultimately failed to have the desired effect on the economy and may in fact have attributed to its eventual collapse. One of the key issues was that Soviet bureaucracy and industry at all levels were so deeply entrenched in the centrally planned Soviet structure that the transformation was mismanaged. Gorbachev later highlighted this shortcoming in his memoirs stating that there was “confusion caused by the haphazard transition of industry to a system of cost accounting, self-financing and self-management.” Furthermore, the policies created new problems for the Soviet Union as the government had to rescue enterprises which it could not allow to fail. In addition, the lack of basic supplies worsened as co-operatives poached the best workers away from state run enterprises and began charging higher prices than the average Soviet could afford for their products. This saw growing resentment build towards Gorbachev and Perestroika as living standards fell.

Perestroika was also played out in the shadow of the Cold War which limited the effects it could have. The inability of the Soviet leadership to escape the Cold War paradox meant that the economy remained strained due to high defence spending and a fear of losing parity with the United States. Reforms therefore still had to maintain the military status quo which underpinned the system and although Gorbachev ultimately brought an end to the Cold War, it was too late for the Soviet economy to escape the paradox.

The curtain collapses

A year into Gorbachev’s Perestroika programme, the Soviet Union was showing little sign of improvement. Nationalist demonstrations and conflicts swept through the Union in 1989 as Soviet satellite nations buoyed by policies of Perestroika and Glasnost established their own regimes. Conditions for Soviet citizens continued to decline, with large queues for basic supplies becoming a regular feature across the Soviet landscape. Conditions reached unprecedented levels in 1990 which saw rationing introduced for the first time since World War Two. The same year also played host to one of the most iconic moments of the 20th century as German citizens from both the East and West reunited when the Berlin wall was torn down and the country was brought together under one flag. This event metaphorically signalled the collapse of the iron curtain and the Soviet Empire which was formally disbanded on the 26th December 1991.

The extent to which Perestroika caused this collapse is a point still debated today by historians. Some suggest that the Soviet system was doomed to fail from its conception and eventually collapsed under its own weight. The other school of thought suggests that the collapse may have been unavoidable but that Gorbachev’s policies turned the tide and ultimately triggered its collapse. Bowker believes that ultimately “the Soviet economic system was unsuitable for the modern era which it was entering. Gorbachev’s reforms failed primarily in the economic sphere and this proved a catalyst for the collapse. It’s his policy of Perestroika, therefore, which explains why the collapse happened when it happened.”

Following the disintegration of the Soviet Union, Russia became the successor state. Led by Boris Yeltsin, Russia continued with the reforms which began under Gorbachev, especially in the political sphere, with the further establishment of democracy and integration into the world system. Economically, however, Yeltsin moved beyond the restructuring brought on by Perestroika and abandoned the Soviet system all together replacing it with a capitalist market based system. This was pursued under the title of ‘shock therapy’ which had three main pillars; liberalisation, stabilisation and privatisation.

Rather than bringing Russia to life, ‘shock therapy’ had adverse effects on the economy. The liberalisation of the economy saw Russia begin to suffer from hyperinflation in 1992, reaching 2,520% at its peak. The economy also shrank dramatically and by the end of 1995 Russian GDP had declined by 50% since 1990, a greater decline than that experienced by the United States during the Great Depression.

Exchange between the ruble and the US dollar was legalised which caused further economic instability. The rate of exchange initially sat at 144 rubles per $1 but this rose significantly over the following years to around 500 rubles per $1 in 1993. Despite all the problems the Russian economy was facing, the West, led by the United States and IMF, urged Russia to continue its rapid transition.

The detrimental effects which ‘shock therapy’ had on the economy played out in Russian society during the early 1990s and conditions were far from those first envisaged when Gorbachev introduced Perestroika. Unemployment swept across Russia as state run factories closed. Poverty in the country increased from 1.5% of the population in the late Soviet era to around 45% in 1993. With inflation and the lowering value of the ruble, the average Russian’s purchasing power had decreased meaning that they could afford very little, despite the shelves now being full, unlike in the late Soviet era.

Diseases and addiction ravaged the population, who could no longer afford basic medicine. Violent crime and ethnic conflict also began to spread. It was a dire time for the Russian population and is widely recognised as not only one of the most devastating peacetime economic collapses but also a human tragedy. Gorbachev, the father of the reforms, stated in a 2010 New York Times op-ed that ultimately “shock therapy was much worse than the disease.” For the Russians who lived through the fall of the Soviet Union and the 1990s, the promise of Perestroika had not delivered and shock therapy caused further pain to the nation. Many longed for a return to the Soviet era.

In retrospect

Domestically, Perestroika remains a polarising concept. Despite all the successes which Gorbachev achieved, such as bringing the Cold War to an end, democratic reforms across the Soviet Union and liberalising the country, economic failure still resonates in the mind of Russian citizens. As Alexei Makarikin, political analyst at the Centre for Political Technologies states in an article published on the World Security Network: “all hope was placed on him [Gorbachev], and all failures are being blamed on him.”

Speaking in his own defence, Gorbachev focuses on the political success of Perestroika believing, in hindsight, that these offered freedoms unlike ever before. He does however admit mistakes including the collapse of the Union, losing sight of the economy and causing the people of the Soviet Union to suffer because of the shortages of basic supplies. For Bowker, “Gorbachev would see the collapse of the Soviet Union as his biggest failure. He never wanted that to happen. It was his aim to build a social democratic union with a free market and high living standards. He failed to deliver this.”

Russia has since recovered from the collapse of the Soviet Union and the disastrous 1990s. As one of the BRICS, it is now considered one of the most important emerging economies in the world and is fully integrated into the global political and economic system. Therefore, despite all the hardship Gorbachev believes that Perestroika was a success in the end because it “brought the country to a point from which there could be no return to the past.”

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