Economic policy under Gorbachev

1987 — Law on state enterprise• Companies had to fulfil state orders but could sell excess• They were free to determine output levels

• State still held means of production, and prices were still centrally set• Government wouldn't fund poor industries• Gosplan was replaced with workers’ collectives

1987 — Joint venture law• Foreigners allowed to invest• The Soviet share in a company had to be >50% though• Soviet citizens had to occupy Chairman and General manager positions

• This was changed after potential western partners complained

1988 — Law on co-operatives• Allowed private ownership of businesses

• Initially with high taxes and employment restrictions• These were later removed

• Co-operative restaurants, shops etc. sprang up

Evidence for Failures of Perestroika

• Nomenkaltura were resistance to change as they wanted to maintain their privileges• Promoting a freer market so quickly in a communist state was

doomed to fail• Anti-alcohol campaign allowed the black market to thrive and the

state was unable to tax alcohol sold in this way• It was brought in too late to be effective

General Issues

• Production fell by 4% in 1990 and 15% in 1991 - • Freer market led to price increases, unemployment and shortages as

businesses were able to set their own prices and wages, sell products as they wish, as well as having the ability sack workers• Falling price of oil and gas

Production

State Expenditure

• Thought that disarmament would free resources and money, but they were ties up in Afghanistan• State budget deficit shot up to 14% by 1989