USSR: ECONOMIC DISCONTENT IN THE SOVIET REPUBLICS

• Document Type: FOIA
• Collection: FOIA Collection
• Document Number (FOIA) /ESDN (CREST): 06781081
• Release Decision: RIPPUB
• Original Classification: U
• Document Page Count: 9
• Document Creation Date: March 8, 2023
• Document Release Date: August 13, 2019
• Case Number: F-2018-00127
• Publication Date: November 2, 1990

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Economic & Energy
Weekly (u)
2 November 1990
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DI IEEW 90-044
2 November 1990
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(b)(3)
International
International
Economic & Energy Weekly (u)
2 November 1990
NR Record
USSR: Economic Discontent in the Soviet Republic
SOVA, with a contribution from SOVA
(b)(31
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NR Record
Comments and queries regarding this publication are welcome. They may
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sgetroks.
DI IEEW 90-044
2 November 1990
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"1.eveL
USSR: Economic Discontent in the
Soviet Republics
Longstanding differences in levels of economic devel-
opment among the Soviet republics have fueled eco-
nomic tensions and strengthened the centrifugal
forces at work in the Soviet Union. The European
parts of the country, particularly the Baltics and the
Russian cities of Moscow and Leningrad, have had
the USSR's highest standard of living and most
developed economies. On the other end of the scale,
the economies of the republics of Central Asia have
been much more primitive. These southern republics
share many of the problems of developing countries�
poverty, explosive population growth, and unemploy-
ment. During Gorbachev's term in office, the gap
between the richer and poorer republics has increased,
in part as a result of continued unfavorable demo-
graphic trends, tighter resource constraints, and
Gorbachev's economic policies.
Gorbachev's Inheritance
In terms of per capita proxy GNP, the gap between
the northern and southern republics has persisted and
widened since 1970. Most notably, the Russian Re-
public (RSFSR) has improved its position in relation
to the rest of the country. The republics of the
northwestern periphery generally fared much better
than the southern republics. With the exception of
Georgia, the economies of Caucasus and Central Asia
fell even further behind the rest of the country.
Measuring the Regional Development Gap
To gauge the growing development gap, we used a
synthetic aggregate measure�called proxy GNP�
developed by a leading US Sovietologist. Proxy GNP
combines data on investment, government expendi-
tures, and consumption offood, housing, education,
and other social needs, covering approximately four-
fifths of what is included in national GNP accounts.
Although incomplete, this measure is probably a
good indicator of changes in the relative economic
standing of Soviet republics.
A review of investment, consumption, and government
expenditures data by republic during the period 1970-
85 demonstrates that Moscow chose to pursue nation-
al economic goals over achieving regional parity in
income. For example, Moscow allocated resources
where it believed they could be most productively
utilized and not in order to systematically diminish
economic disparities and deal with emerging regional
economic problems. The goal of equalization took a
back seat to other national priorities, including mod-
ernization of existing industrial capacity, the buildup
of the defense sector, and increased energy produc-
tion.
The gap in economic development between Soviet
republics resulted from regional differences in natural
resource endowments and uneven development. Sharp
differences in population growth also contributed .to
the development gap. Although population growth in
much of the industrial north has hovered at replace-
ment levels, extremely rapid population growth in the
southern Muslim republics has made it more difficult
to improve levels of education and the quality and
availability of jobs, housing, and medical care.
Despite an avowed goal of diminishing regional eco-
nomic disparities, Moscow's development policies in
practice also played a role in increasing the gap.
21
The rigid, highly centralized Soviet system of eco-
nomic management also neglected regional consider-
ations in planning and resource decisionmaking. Local
authorities had little control over their own econo-
mies. Factories were often built without regard for the
availability of local labor, without adequate housing
or social services for the work force they attracted
from other regions, and with little concern for the
environment. Moreover, central planners emphasized
regional specialization and economic interdependence
rather than balanced development. As a result, many
parts of the country developed lopsided economies
dependent on one or two sectors. The economy of
"1"-Ecret,,
DI IEEW 90-044
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Latvian
Utttuanian S.S.R. Estonian
S.S.R. S.S.R.
Belorussian
S.S.R.
S.S.R.
M:ddoea
*MOSCOW
Ukraini n
S.S.R.
Georgian
S.S.R.
Annenian
S.S.R.
Azerbaijan
S.S.R.
Russian Soviet Federative Socialist Republic
(R.S.F.S.R.)
Soviet Union
Tajik
S.S.R.
11111116`.11jKirghiz
S.S.R.
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the Incorporation of Estonia. totals. COO Whorl...
Into the Servial Union. Other bounder, representation
lo oat outho llot. �
Unclassified
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22
720395 (300837) 11.90
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''vegeL
southern Central Asia, for example, was focused
overwhelmingly on the cultivation of cotton, to the
detriment of food production and the development of
industry.
Regional Development Under Gorbachev
Since 1985 the USSR's continuing economic slow-
down, growing energy requirements, and Gorbachev's
economic policies have played an increasingly impor-
tant role in regional economic development:
� Economic slowdown. The decline in the rate of
economic growth, which began in the early 1970s,
and the more recent burden of the budget deficit
have made Moscow reluctant to allocate resources
to the less productive, less developed regions.
� Energy needs. Increasing domestic energy require-
ments, the rising cost of energy extraction, and the
need for hard currency from fuel exports have led
Moscow to channel a growing share of investment
into Siberia and the Soviet Far East, to the detri-
ment of economic development in other regions.
� Economic policies. Gorbachev's industrial modern-
ization program, for example, emphasized the reno-
vation and retooling of existing industrial capacity,
particularly in the machine-building sector. As a
result, more resources were directed to central
manufacturing regions, leaving a small share of
investment funds for the development of Central
Asia and much of the Caucasus.
Moreover, Gorbachev did not make the reduction of
economic inequalities among the republics a policy
goal. He urged the republics to take responsibility for
their own development rather than wait for handouts
from the center. Ethnic violence fueled by unemploy-
ment and poverty subsequently led Gorbachev to
moderate this public stance and call for efforts to
narrow regional gaps in economic development. Nev-
ertheless, he has pursued a set of economic policies
that have amounted to a "wager on the strong," which
has meant a continuing flow of resources to the more
developed republics.
23
The antialcohol campaign of 1985-88 also had a
differential impact on republic economies, disrupting
trade, agriculture, and industry in the wine-producing
republics of Azerbaijan, Moldavia, and Georgia. The
sudden cutback in retail trade orders for wine drasti-
cally reduced winemaking profits, a key source of tax
revenue for republic budgets. Moreover, tens of thou-
sands of hectares of vineyards were uprooted during
the height of the campaign, damage that will take
years to undo.
Decentralizing economic reforms favored the econo-
mies of more developed regions. Enterprise self-
financing�a reform that requires enterprises to pay
for their own operations but allows them to keep a
larger share of their profits for investment and worker
incentives�gave an advantage to manufacturing en-
terprises. Under the current pricing system, manufac-
turing is much more profitable than resource extrac-
tion and agriculture, which dominate the economies of
the southern republics, Siberia and the Soviet Far
East. Profitability also depends on the existing infra-
structure of the region, access to supplies and mar-
kets, and the quality of equipment, labor, and man-
agement�all of which are better in the northwestern
USSR.
Gorbachev's Policies Fuel Tensions
Economic chaos resulting from ill-conceived and poor-
ly implemented economic reforms, as well as from
ethnic and labor unrest, has resulted in a deterioration
in living conditions in a number of regions. These
conditions have heightened discontent over economic
inequalities. They have also lead to demands for
increased autonomy, thereby enhancing the prospect
of political fragmentation.
The degeneration of traditional supply and distribu-
tion systems has increased regional discrepancies in
the availability of food and consumer goods over the
last two years. Regional disparities in food supplies, in
particular, are likely to intensify, leaving regions that
are not self-sufficient in food production worse off.
Food shortages, in turn, have fueled popular protest.
Farms and local leaders in some agricultural regions
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'1,cgr<
USSR Republics: Levels of Per Capita Proxy GNP,
1970 and 1988
1970 = 1988
Percent above or below
the USSR average
-60
-40
-20
0
20
40
RSFSR
1
Ukrainian SSR
Belorussian SSR
Moldavian SSR
I
The Baltic republics
Estonian SSR
Latvian SSR
Lithuanian SSR
The Caucasus
Georgian SSR
Armenian SSR
Azerbaijan SSR
The Central Asian republics
Kazakh SSR
Uzbek SSR
Turkmen SSR
Kirghiz SSR
Tajik SSR
�
-60
-40
-20
0
20
40
Unclassified
24
328532 11-90
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Boris Yeltsin�A Champion of
Russian Republic Rights
Yertsin became a popular national figure as Commu-
nist Party leader-of Moscow in the mid-1980s
through his personal attention to the general welfare.
He has further enhanced his stature by being the only
national-level leader to break decisively with the
CPSU, capitalizing on the antiestablishment mood in
the country. He has pushed a program for political
and economic change that would move the USSR
rapidly toward Western-style concepts of democracy
and a market economy: Whether Yertsin's program
is driven more by philosophical principle or by politi-
cal pragmatism is not clear, nor is it clear how well
he understands the mechanics of a market economy,
but�in contrast to Gorbachev�he appears to be
convinced of the need for decisive actions.
Yel'tsin apparently believes that, to survive, the Sovi-
et Union must be transformed. He publicly supports
republic autonomy, and a union in which the repub-
lics determine how responsibilities between them-
selves and the center will be distributed. But, in
keeping with Russia's historical demographic and
economic predominance, he sees his own republic as
central to a new union. This view has made at least
some non-Russian leaders skeptical of him. He has
made clear his intention to forge a significant foreign
policy role for the Russian Republic but would leave
overall administration of foreign policy to Moscow
during an unspecified transition period. �
In the months ahead, Yel'tsin faces challenges that
could quickly erode his political standing. He is
identified as the primary prbponent of a bold turn to
a market economy that is certain to cause more pain
than gain in the near term. He has failed to prepare
his constituents for the hard times ahead, and social
unrest caused by the change could be laid at his
doorstep. Pressures for independence from non-Rus-
sian nationalists are likely to raise tensions between
Russians and non-Russians. Yel'tsin also faces obsta-
cles in the provinces from local political bosses,
mostly Communists, whose opposition might serious-
ly hinder implementation of reform at the grassroots.
25
have cut back on deliveries to central stocks to keep
more food for local use and barter. Northern industri-
al cities�especially the "rust belt" of the Urals�and
parts of Central Asia will have increasing difficulty
maintaining the accustomed diet of their populations.
Food producing regions of the USSR will fare better.
Limited Options
Gorbachev's options for dealing with the economic
.inequalities that are fueling tensions among the re-
publics are limited. At a time when reducing the
enormous budget deficit and increasing supplies of
consumer goods have become top priorities of the
regime, expensive regional development projects are
luxuries Moscow cannot afford. As a result, the
traditional Soviet strategy of throwing resources at a
problem is no longer a viable option, and Gorbachev
must look instead to two approaches that may enable
him to get by "on the cheap." The first, which has
been pursued to some degree, is to leave the existing
economic system essentially intact but turn over
responsibility for most activities to the republics in
hope that their greater concern with local conditions
will translate into better economic performance. The
second option is to supplement greater republic eco-
nomic autonomy with price reforms and other mea-
sures that would facilitate the use of genuine market
forces to redirect the flow of resources.
As the Soviet leadership has come to acknowledge,
price reform is necessary to improve the efficiency
with which resources are used. Such a move is certain
to have a major impact on relations among the
republics. The current system of wholesale prices
overvalues manufactured goods and greatly underval-
ues raw materials, energy, and agricultural products.
Proposed revision of wholesale prices would attempt
to redress this imbalance, improving the trade balance
for republic economies geared to energy, agriculture,
and raw materials. The areas that would benefit most
would be the RSFSR, the Ukraine, the Kazakh,
Turkmen, Kirghiz, and Tajik republics, and Molda-
via. Energy and resource-poor republics�most nota-
bly the Baltic region�would be adversely affected by
such a reform.
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Privatization is another measure that must be pursued
if the Soviet economy's prospects for recovery are to
be enhanced, and.it is one that could.have a major
impact on.the.relative rates of economic.development
among the Soviet republics. The experience of new.
cooperatives has clearly demonstrated that the repub-
lics differ substantially both in their public's support
for private entrepreneurs and in the willingness of
local officials to allow the expansion of -these actiVi,
ties. The Baltic region, for example, took advantage of
such reforms to a much greater extent than did the
RSFSR and the Central.Asian republics.
The Risk of Separatism
Privatization, price reform; and greater regional au-
tonomy will -not necessarily reduce economic inequal-
ities among the Soviet republics and may even magni-
fy these differences. Because of the enormity of
Moscow's economic Problems, Gorbachev is tinable.to
promise the republics a steady�much less; quick�fl
improvement in their living standards or a.narrowidg
of their economic differences. Nor can he promise
that the sacrifices and hardships required to solve
these problems will be distributed evenly among the
republics: This policy entails a great risk�of encourag-
ing the very separatist forces and tendencies that � �
Gorbachev is trying to counter. Gorbachev's willing-
ness to take this risk suggests, however, that at the
moment he sees no other way to deal with the
problem.
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