This article is part of the
History of Russia series.
 Early Russian East Slavs
 Kievan Rus'
 Mongol invasion of Russia
 Imperial Russia
 Russian Revolution
 Russian Civil War
 History of the Soviet Union: Part I
 History of the Soviet Union: Part II
 Collapse of the Soviet Union
 Commonwealth of Independent States
 History of post-communist Russia
 List of famous Russians

This article covers the history of the Soviet Union (USSR) from its victory in The Great Patriotic War in 1945 until it was dissolved on December 26, 1991 by the Supreme Soviet. See History of the Soviet Union: Part I for its history from October Revolution of 1917 to 1945.

Table of contents
1 The breakdown of postwar peace
2 De-Stalinization and Nikita Khrushchev
3 The Brezhnev years
4 Perestroika, Glasnost, and the dissolution of the Soviet Union
5 Conclusions: the post-Communist transition
6 Related articles
7 External links

The breakdown of postwar peace

Background: Soviet-US relations:

The wartime alliance between the United States and the Soviet Union was an aberration from the normal tenor of Russian-US relations. Strategic rivalry between the huge, sprawling nations goes back to the 1890s when, after a century of friendship, Americans and Russians became rivals over the development of Manchuria. Czarist Russia, unable to compete industrially, sought to close off and colonize parts of East Asia, while Americans demanded open competition for markets. In 1917 the rivalry turned intensely ideological. Americans never forgot that the Soviet government negotiated a separate peace with Germany in the First World War in 1917, leaving the Western Allies to fight the Central Powers alone. Lasting Russian mistrust stemmed from the landing of US troops in Soviet Russia in 1918, which became becoming involved, directly and indirectly, in assisting the anti-Bolshevik Whites in the civil war. In addition, the Soviets never forgot the repeated assurances from Roosevelt that the United States and Britain would open a second front on the European continent; but the Allied invasion did not occur until June 1944, more than two years after the Soviets had demanded it. In the meantime, the Russians suffered horrendous casualties, as high as twenty million dead. The West had delayed the invasion, forcing the Soviets to absorb the brunt of German strength.

World War II resulted in enormous destruction of infrastructure and populations throughout Eurasia, from the Atlantic to the Pacific oceans, with almost no country left unscathed. The Soviet Union was especially scathed due to the mass destruction of the industrial base that it had built up in the 1930s. The only major industrial power in the world to emerge intact, and even greatly strengthened from an economic perspective, was the United States, which moved swiftly to consolidate its position.

The Big Three: The Allied Leaders at Yalta
Prime Minister Winston Churchill (UK),
President Franklin Delano Roosevelt (US),
and First Secretary Joseph Stalin (USSR)

When the war ended in Europe on May 8, 1945, Soviet and Western (US, British, and French) troops were located in particular places, essentially, along a line in the center of Europe that came to be called the Oder-Neisse Line. Aside from a few minor adjustments, this would be the "iron curtain" of the Cold War. In hindsight, Yalta signified the agreement of both sides that they could stay there and that neither side would use force to push the other out. This tacit accord applied to Asia as well, as evinced by US occupation of Japan and the division of Korea. Politically, therefore, Yalta was an agreement on the postwar status quo in which Soviet Union hegemony reigned over about one third and the United States over two thirds.

And there were fundamental contrasts between the visions of the United States and the Soviet Union, between capitalism and communism. And those contrasts had been simplified and refined in national ideologies to represent two ways of life, each vindicated in 1945 by previous disasters. Conflicting models of autarky versus exports, of state planning against free enterprise, were to vie for the allegiance of the developing and developed world in the postwar years. Even so, however, the Cold War was not obviously inevitable in 1945.

Despite the wherewithal of the United States to advance a different vision of postwar Europe, Stalin viewed the reemergence of Germany and Japan as Russia's chief threats, not the United States. Stalin assumed that the capitalist camp would soon resume its internal rivalry over colonies and trade and not pose a threat to Russia. Economic advisers such as Eugen Varga reinforced this view, predicting a postwar crisis of overproduction in capitalist countries which would culminate by 1947-1948 in another great depression.

Trends in federal expenditure in the United States reinforced Stalin's expectations. Due mostly to the war effort, in the first peacetime year of 1946, federal spending still amounted to $62 billion, or 30% of GDP, up from 3% of GDP in 1929, before the Great Depression, New Deal, and Second World War. Stalin thus assumed that the Americans would need to offer him economic aid, needing to maintain state expenditures. Thus, the prospects of an Anglo-American front against him seemed slim from Stalin's standpoint. However, there would be no postwar crisis of overproduction. And, as Stalin anticipated, this was averted by maintaining roughly the same levels of government spending. It was just maintained in a vastly different way.

In the end, the postwar American government would look a lot like the wartime government, with the military establishment, along with military-security dominant.

Two visions of the world

The United States, however, led by President Harry S. Truman since April 1945, was determined to shape the postwar world according to open up the world's markets to capitalist trade according to the principles laid down by the Atlantic Charter: self-determination, equal economic access, and a rebuilt capitalist Europe that could again serve as a hub in world affairs. Franklin Roosevelt had never forgotten the excitement with which he had greeted the principles of Wilsonian idealism during World War I, and he saw his mission in the 1940s as bringing lasting peace and genuine democracy to the world.

But this vision was equally a vision of national self-interest. World War II resulted in enormous destruction of infrastructure and populations throughout Eurasia, from the Atlantic to the Pacific oceans, with almost no country left unscathed. The only major industrial power in the world to emerge intact—and even greatly strengthened from an economic perspective—was the United States, which moved swiftly to consolidate its position. As the world's greatest industrial power, and as one of the few nations unravaged by the war, the United States stood to gain more than any other country from opening the entire world to unfettered trade. The United States would have a global market for its exports, and it would have unrestricted access to vital raw materials. Determined to avoid another economic catastrophe like that of the 1930s, Roosevelt saw the creation of the postwar order as a way to ensure continuing US prosperity.

Such a Europe required a healthy Germany at its center. Truman could advance these principles with an economic powerhouse that produced 50 percent of the world's industrial goods and military power that rested on a monopoly of the new atom bomb. These aims were at the center of what the Soviet Union strove to avoid as the breakdown of the wartime alliance went forward.

The collapse of postwar peace

The wherewithal of the United States to advance a different vision of the postwar world conflicted with Soviet interests, which motivated their determination to shape postwar Europe. National security had been the real cornerstone of Soviet policy since the 1920s, when the Communist Party adopted Stalin's "socialism in one country" and rejected Trotsky's ideas of "world revolution." Before the war, Stalin was uninterested in pushing Soviet boundaries beyond their full Czarist extent.

After the war, the aims of Soviet Union were not aggressive expansionism, but attempts to secure the war-torn country's western borders. Stalin, assuming that Japan and Germany could menace the Soviet Union once again by the 1960s, thus quickly imposed Moscow-dominated governments in the springboards of the Nazi onslaught: Poland, Romania, and Bulgaria.

Disagreements over postwar plans first centered on Eastern and Central Europe. Having lost 20 million dead in the war, suffered German and Nazi German invasion through Poland, and suffered tens of millions of casualties due to onslaughts from the West three times in the preceding 150 years, first with Napoleon, the Soviet Union was determined to destroy Germany's capacity for another war. US aims were ostensibly opposed since they would require a healthy Germany at the center of Europe.

Winston Churchill, long a visceral anti-Communist, condemned Stalin for cordoning off a new Russian empire with an "iron curtain." Afterwards, Truman finally refused to give the war-torn Soviet Union reparations from West Germany's industrial plants, Stalin retaliated by sealing off East Germany as a Communist state.

Russia's historic lack of maritime access, a perennial concern of Russian foreign policy well before the Bolshevik Revolution, was also a focus for Russia where interests diverged between East and West. Stalin pressed the Turks for improved access out of the Black Sea through Turkey's Dardanelles Strait, which would allow Soviet passage from the Black Sea to the Mediterranean. Churchill had earlier recognized Stalin's claims, but now the British and Americans forced the Soviet Union to pull back.

But when Soviet security was not at stake, Stalin demonstrated no aggressive designs: the Soviet Union eventually withdrew from Northern Iran, at Anglo-American behest; Stalin did observe his 1944 agreement with Churchill and did not aid the communists in the struggle against the corrupt, British-led monarchial autocracy in Greece; in Finland he accepted a friendly, noncommunist government; and Russian troops were withdrawn from Czechoslovakia by the end of 1945.

Soviet responses to provocation

While the Soviet Union acquiesced to Anglo-American designs to impede Soviet access to the Mediterranean (a perennial focus of British foreign policy since the Crimean War in the 1850s), the Americans heated up their rhetoric; Anglo-American aims to prop up the Greek autocracy became a struggle to protect "free" peoples against "totalitarian" regimes. This would be articulated in the Truman Doctrine Speech of March 1947, which argued that the United States would have to $400 million to efforts to "contain" communism.

By successfully aiding Greece, Truman also set a precedent for the US aid to regimes, no matter how repugnant, that were anti-Communist and pro-capitalist. American foreign policy moved from State Department officer George Kennan's argument that the Soviets had to be "contained" using "unalterable counterforce at every point," until the breakdown of Soviet power occurred.

The United States capitalized on the Cold War fears to launch massive economic reconstruction efforts, first in Western Europe and then in Japan (as well as in South Korea and Taiwan). The Marshall Plan began to pump $12 billion into Western Europe. The rationale was obvious: What was the point of having such overwhelming productive superiority if the rest of the world could not muster effective demand? Furthermore, economic reconstruction helped create clientelistic obligations on the part of the nations receiving US aid; this sense of obligation fostered willingness to enter into military alliances and, even more important, into political subservience.

Stalin, fearing a revived Germany due to the Marshall Plan, responded by blocking access to Berlin, which was deep within the Soviet zone although subject to four power control. Military confrontation loomed while Truman embarked on an impressive, provocative propaganda stunt: flying supplies in over the blockade during 1948-1949.

Truman joined eleven other nations in 1949 to form the North Atlantic Treaty Organization (NATO), America's first "entangling" European alliance in 170 years. Stalin retaliated against these provocative steps by integrating the economies of Eastern Europe in his version of the Marshall Plan, exploding the first Soviet atomic device in 1949, signing an alliance with Communist China in February 1950, and forming the Warsaw Pact, Eastern Europe's counterpart to NATO.

Confronted with growing Soviet successes to respond to provocative Western actions, US officials quickly moved to escalate and expand "containment." In a secret 1950 document, NSC-68, they proposed to strengthen their alliance systems, quadruple defense spending, and embark on an elaborate propaganda campaign to convince Americans to fight this costly cold war. Truman ordered the development of a hydrogen bomb; in early 1950 the US embarked on its first attempt to prop up colonialism in French Indochina in the face of mounting popular, communist-led resistance; and the United States embarked on a blatant violation of wartime treaties yet: plans to form a West German army.

The immediate post-1945 period may have been the historical high point for the popularity of communist ideology. Communist parties won large shares of the vote free elections in countries such as Belgium, France, Italy, Czechoslovakia, and Finland and won significant popular support in Asia—in Vietnam, India, and Japan—and throughout Latin America. In addition they won large support in China, Greece, and Iran, where free elections remained absent or constrained but where Communist parties enjoyed widespread appeal.

In response, the United States sustained a massive anticommunist ideological offensive. The United States aimed to interfere in the internal affairs and sovereignty of other countries or impose its will upon others under the guise of "freedom", "democracy" and "human rights". In retrospect, this initiative appears largely successful: Washington brandished its role as the leader of the "free world" at least as effectively as the Soviet Union brandished its position as the leader of the "progressive" and "anti-imperialist" camp.

De-Stalinization and Nikita Khrushchev

After Stalin's death, Khrushchev shocked delegates to the 20th Party Congress on February 23, 1956 by publicly denouncing the "cult of personality" that surrounded Stalin, and accusing Stalin of mass murder during the Great Purges. This effectively alienated Khrushchev from the more conservative elements of the Party. He became Premier on March 27, 1958 after a long and complex series of maneuvers, notably the crucial removal of Stalin's obvious successor, Beria, head of the KGB. Even before this watershed speech, however, the new leadership declared an amnesty for some serving prison sentences for criminal offences, announced price cuts, and relaxed the restrictions on private plots. The ten-year period that followed Stain's death also witnessed the reassertion of political power over the means of coercion. The party became the dominant institution over the secret police and army. Effectively overnight, Stalin's death relieved the Soviet people from his apparatus of state terror, thus reducing the role of prison labor in the economy.

Khrushchev, who had outmaneuvered his Stalinist rivals, was regarded by his political enemies, many of whom belonged to the new conservative generation of rising technocrats, as a boorish, uncivilized peasant, with a reputation for interrupting speakers to insult them. In one famous incident at a United Nations conference in 1960, Lorenzo Sumulong, the Filipino delegate, asked Khrushchev how he could protest Western capitalist imperialism while the Soviet Union was at the same time rapidly assimilating Eastern Europe. Khrushchev became enraged and informed Sumulong that he was, "a jerk, a stooge and a lackey of imperialism," then removed one of his shoes and banged it on the table several times for emphasis. The Politburo was mortified.

Khrushchev was deposed in 1964, due largely to the Cuban missile crisis and his personal mannerisms, both of which were regarded by the Party as tremendous embarrassments on the international stage, and his reformist posture on some issues of central economic planning, which alarmed many entrenched interests. After seven years of house arrest, Khrushchev died at his home in Moscow, USSR (now Russia) on September 11, 1971. He is interred in the Novodevichy Cemetery, Moscow, Russia.

The Brezhnev years

The administrative command system: from rapid growth to stagnation

When the First Five-Year Plan drafted by GOSPLAN established centralized planning as the basis of economic decision-making, the Soviet Union was still largely an agrarian nation lacking the complexities of a highly industrialized one. Thus, its goals, namely augmenting the country's industrial base, were those of extensive growth or the mobilization of resources. At a high human cost, due in large party to prison labor, and the effective militarization of factories, the Soviet Union forged a modern, highly industrialized economy more rapidly than any other nation beforehand. By the 1970s, the Soviet Union was a complex industrialized society with an intricate division of labor and with complex interconnection of industries over a huge geographical expanse that had reached military parity with the Western powers.

During the early Brezhnev years following 1964, the ACS economy still had not yet exhausted its capacity for growth. The Soviet Union improved living standards by doubling urban wages and raising rural wages by around 75%, building millions of one-family apartments, and manufacturing large quantities of consumer goods and home appliances. Under his tutelage, industrial output also increased by 75%, and the Soviet Union became the world's largest producer of oil and steel. The twenty years following Stalin's death in 1953 were the best period in the history of Russia for the ordinary citizen in terms of rising living standards, stability, and peace. Terror, famines, and world war were only horrific memories while the tide of history appeared to be turning in favor of the Soviet Union. The United States was mired in economic recession resulting from the OPEC oil embargo, inflation caused by excessive government expenditures for the Vietnam War, and not to mention the wartime quagmire. Meanwhile, pro-Soviet regimes were making great strives abroad, especially in the Third World. Vietnam had defeated the United States, becoming a united, independent state under a Communist government while other Communist governments and pro-Soviet insurgencies were spreading rapidly across Africa, Southeast Asia, and Latin America.

Leonid Brezhnev

But during late Brezhnev years the economy began to stagnate and the population increasingly began demanding greater quantities of quality goods than the economy could produce. Plan quotas (control figures) for enterprises, of course, were fulfilled on the basis of output, not quality. In the past, shoddy goods were more acceptable when access to consumer goods was so limited. But with ever-improving living standards and with the growth of a new middle class since de-Stalinization, shortages of shoddy goods grew increasingly unacceptable. Supply shortages were not helped by the insistence on raising wages while keeping prices down at artificially-low administratively-set levels either.

Intensive growth (growth to improvements in productivity), in contrast to the extensive growth (mobilization of capital and labor) achieved under Stalinist industrialization, would prove to be the disadvantage to centrally directed economic decision-making. As the Soviet economy grew more complex, as it required more and more complex disaggregation of control figures (plan targets) and factory inputs, and as it required more communication between the enterprises and the planning ministries, and as the number of enterprises, trusts, and ministries multiplied, it increasingly suffered from a systemic inability to respond to change, adapt new technologies, and provide incentives at all levels to improve growth, productivity and efficiency.

At the enterprise level, managers not only lacked the incentives to improve productivity found in market economies, but often had incentives not to over-fulfill plan targets by as much as possible. For one, there was a tendency to overstate capacity in order to bargain for more advantageous plan targets or control figures with the ministries (targets that, of course, would be easier to implement). Faulty communication, more of a problem as the economy grew larger and more complex, would reverberate throughout the economy, distorting supply and demand figures for inputs in interconnected industries. Moreover, managers were often more preoccupied by institutional careerism than improving productivity. They received fixed wages and only received incentives for plan fulfillment on the basis of job security, bonuses, and benefits like special clinics and private dachas. Managers received such benefits when targets were over-fulfilled, but when, for instance, they were greatly over-fulfilled, they only saw their control figures increased. Hence, there was an incentive to exceed targets, but not by much. This effect was known as the "ratchet effect".

Planning was also very rigid; plant managers were not able to deviate from the plan and were allocated certain funds for certain capital and labor inputs. As a result, plant managers could not improve productivity by laying-off unnecessary workers due to such labor controls. There was substantial underemployment due to such rigidities by the plans devised during collective bargaining between enterprises and ministries.

And there was a systemic lack of incentives to improve productivity through technological innovation. If the production process were more efficient because of the introduction of new technology, enabling the same process to require less inputs or less labor, it would just result in lower administratively-set prices rather than prices set by a profit-maximizing equilibrium of supply and demand. In other words, improved productivity through technological innovation would do little to make the industry more profitable for those who had a stake in it.

Meanwhile, due to the realities of the Cold War, the Soviet Union, with its historically much smaller productive capabilities than those of the West, faced a disproportionate burden in the arms race, having to devote a much relatively higher segment of its economy to military expenditures to reciprocate those of the West. Before the Cold War, long-standing disparities in the productive capacities, developmental levels, and geopolitical strength existed between East and West. The "East", in many respects, had been behind the "West" for centuries. As a result, reciprocating Western military build-ups during the Cold War placed an uneven burden on the Soviet economy, forcing them allocate a disproportionately large share of their resources to the defense sector. The burden of the Cold War, in conjunction with the growing impracticality of centrally-administered economic decision-making as the economy grew larger and more complex, would lead to a huge imbalance between supply and demand for consumer goods in the Soviet Union's late years.

As mentioned, the Khrushchev and Brezhnev years saw great concessions to consumers, enabling the Soviet people to reap the benefits of the Soviet Union's industrialization during the Stalin years. But as the purchasing power of Soviet workers increased, the products that they demanded were in an ever-shorter supply. Although wages for workers were relatively high, workers were often unable to purchase the products that they demanded because of systemic supply shortages caused by the stagnation of the Soviet economy once it had industrialized and reached a high level of complexity. Many workers thus began accumulating large surpluses at Gosbank, which operated as what would be a state bank and a commercial bank in a market economy. These surpluses would be wiped out after the dismantling of the Soviet economy when price and currency controls were abruptly lifted in 1992.

Calls for reform

Although economic stagnation was pronounced by the time Gorbachev became party chief in 1985, the sluggishness of the Soviet Union's command economy was evident two decades earlier amid calls for reform. Following Khrushchev's ouster in 1964, however, the reform movement high up party ranks was perhaps weakened by the growing power of the ministries and collective leadership. As the political atmosphere gradually moved toward becoming more relaxed since de-Stalinization, a pattern of collective leadership emerged that reconciled the interests of many different bureaucracies and interest groups. In contrast to the system of delegated power in the post-Communist years, Soviet politics under Brezhnev was generally based on informal personal influence that a cadre accumulated over some particular institutions and compromise between committee members.

Known as "bureaucratic pluralism" by Western Sovietologists, this dynamic of politics has been used to explain the aborted Kosygin Reforms of 1965, which called for giving industrial enterprises more control over their own production-mix, some flexibility over wages, and allowed them to put a proportion of profit into their own funds. Since these reforms suggested a move away from detailed central planning and control from above, the planning ministries, whose numbers were proliferating rapidly, fought back and protected their old powers. This was not a difficult task since the Brezhnev/Kosygin collective leadership lacked the strength to counter their influence (the ministries, after all, controlled supplies and rewarded performance) in order to implement the reforms. The ministries curtailed them by just issuing more detailed instructions that retarded the reforms, impeding the freedom of action of the enterprises. Nor did these economic reforms, aimed at increasing productivity by pushing aside surplus labor, necessarily appeal to workers. The constituency that stood to gain the most from the reforms was the enterprise management, but they weren't enthusiastic either since they weren't convinced that these reforms might last. Finally, by 1968 there was the unfortunate example of the Prague Spring in Czechoslovakia, which put the brakes on the momentum for economic and political reform. In contrast, the military sector continued to be the success story.

Due to continued growth rates, some Sovietologists have argued that the ACS system had not yet exhausted its capacity for growth by the late 1960s since it was still sustaining higher rates of growth than the Western powers. In light of this, it has been argued that the Kosygin Reforms of 1965 could have been implemented at just the right time to save the Soviet Union and spare the population of the hardships of the past twenty years. By the Gorbachev era (1985-1991), in contrast, a decade of stagnation, declining productivity, and systemic problems down to the factory level might have been insurmountable. Perhaps the problem with the Kosygin/Brezhnev collective leadership was not too much power concentrated in their hands, but not enough. Forces like the ministries and the military won out, pushing the Soviet Union in a less prudent direction.

However, following the dissolution of the Soviet Union in 1991, Yeltsin was a strong executive with strong formal delegated powers able to implement radical (and unpopular) economic reforms under his leadership by executive decree and unconstitutional actions like his dissolution of the Duma in 1993. Kosygin, then the Soviet Premier, however, could not get the Byzantine labyrinth of the Soviet Administrative Command System to carry out the reforms that he attempted to institute. Unlike Stalin, they simply did not have his apparatus of state terror in place, which enabled Stalin to subvert the party's authority with the secret police.

Perestroika and Glasnost

Although reform stalled between 1964-1982, the generational shift gave new momentum for reform. Changing relations with the United States might also have been an impetus for reform. By the Reagan years in the United States, the abandonment of Détente would force the Soviets to greatly improve their productive capabilities in order to reciprocate the new arms build-up, especially amid talks of "star wars" missile defense. By the time Gorbachev would usher in the process that would lead to the political collapse of the Soviet Union and the resultant dismantling of the Soviet Administrative Command System with Glasnost (political openness) and Perestroika (economic restructuring), the Soviet economy suffered from both hidden inflation and pervasive supply shortages.

Perestroika, Glasnost, and the dissolution of the Soviet Union

Gorbachev instituted a number of political reforms under the name of Glasnost, these included relaxing censorship and political repression, reducing the powers of the KGB and democratisation. The reforms were intended to break down resistance against Gorbachev's economic reforms, by conservative elements within the Communist Party. Under these reforms, much to the alarm of party conservatives. Competitive elections were introduced for the posts of officials (by people within the communist party).

Gorbachev's relaxation of censorship and attempts create more political openness. However had the unintended effect of re-awakening long suppressed nationalist and anti-Russian feelings in the Soviet Union's constituent republics. During the 1980s calls for greater independence from Moscow's rule grew louder, this was especially marked in the Baltic Republics of Estonia, Lithuania and Latvia, which had been annexed into the Soviet Union by Stalin in 1940. Nationalist feeling also took hold in other Soviet republics such as the Ukraine and Azerbaijan. These nationalist movements were strengthened greatly by the declining Soviet economy, whereby Moscow's rule became a convenient scapegoat for economic troubles. Gorbachev had accidentally unleashed a force that would ultimately destroy the Soviet Union.

On February 15, 1989, Soviet forces completed their withdrawal from Afghanistan. The Soviet Union continued to support the communist Democratic Republic of Afghanistan with substantial aid until the end of 1991. In 1989 the communist governments of the Soviet Union's satellite states were overthrown one by one with feeble resistance from Moscow.

By the late 1980s the process of openness and democratisation began to run out of control, and went far beyond what Gorbachev had intended. In elections to the regional assemblies of the Soviet Union's constituent republics, nationalists swept the board. As Gorbachev had weakened the system of internal political repression, the ability of the USSR's central Moscow government to impose its will on the USSR's constituent republics had been largely undermined.

On February 7, 1990 the Central Committee of the Soviet Communist Party agreed to give up its monopoly of power. The USSR's constituent republics began to assert their national sovereignty over Moscow, and started a "war of laws" with the central Moscow government, in which the governments of the constituent republics repudiated all-union legislation where it conflicted with local laws, asserting control over their local economies and refusing to pay tax revenue to the central Moscow government. This strife caused economic dislocation, as supply lines in the economy were broken, and caused the Soviet economy to decline further.

Gorbachev made desperate and ill-fated attempts to assert control, notably in the Baltic Republics, but the power and authority of the central government had been dramatically and irreversibly undermined. On March 11, 1990, Lithuania declared independence and pulled out of the union. However, a large part of the population of the Lithuanian SSR comprised ethnic Russianss, and the Red Army had a strong presence there. The Soviet Union initiated an economic blockade of Lithuania and kept troops there "to secure the rights of ethnic Russians." In January 1991, clashes between Soviet troops and Lithuanian civilians occurred, leaving 20 dead. This further weakened the Soviet Union's legitimacy, internationally and domestically. On March 30, 1990, the Estonian supreme council declared Soviet power in Estonia since 1940 to have been illegal, and started a process to re-establish Estonia as an independent state.

Also amongst Gorbachev's reforms, was the introduction of a directly elected president of the RSFR (Russia). The election for this post was held in June 1991. The populist candidate Boris Yeltsin, who was an outspoken critic of Mikhail Gorbachev won 57% percent of the vote, and humiliated Gorbachev's preferred candidate, Former Prime Minister Ryzhkov, who won just 16% of the vote.

On August 20, 1991, the republics were to sign a new union treaty, making them independent republics in a federation with a common president, foreign policy and military. However, on August 18, a group of Gorbachev's ministers led by Gennadi Yaneyev, backed by the KGB and military, staged a coup d'état. Gorbachev was held prisoner in his summer residence on the Crimean peninsula (Ukraine), and martial law was declared in Russia on August 19. Large groups of soldiers controlled Moscow, but no politicians were arrested. During this time, Estonia declared its independence on August 20.

Boris Yeltsin and the semi-democratically elected Russian parliament opposed the coup, and the coup makers gave up on August 21, the same day that the third Baltic Republic, Latvia, declared its independence. Immediately after the coup had failed, and before Mikhail Gorbachev returned to Moscow, the power vacuum was filled by Boris Yeltsin, Boris Yeltsin immediately signed a decree banning the Communist party throughout Russia, this ban was soon extended throughout the Soviet Union. Thus 70 years of Communist rule effectively came to an end.

On December 21, 11 of the 12 remaining republics (all except Georgia) founded the Commonwealth of Independent States, effectively ending the USSR. On December 25, Mikhail Gorbachev resigned as president, and on December 26 the Supreme Soviet officially dissolved the USSR.

Conclusions: the post-Communist transition

To eliminate the distortions of the ACS system and in favor of democratization and capitalism, Yeltsin's shock program, employed days following the dissolution of the Soviet Union, cut subsidies to money-losing farms and industries, decontrolled prices, moved toward convertibility of the ruble, and moved toward restructuring the largely state-owned economy. Existing institutions, however, were abandoned before the legal structures of a market economy that govern private property, oversee the financial market, and enforce taxation were functional, despite the fact that the two major components of a macroeconomy are a banking system and the state budgetary system.

According to market economists, the dismantling of the administrative command system in Russia was supposed to raise GDP and living standards by allocating resources more efficiently. It was supposed to create a movement outward towards production possibilities by eliminating of central planning, substituted by decentralized market system, eliminating huge distortions through liberalization, providing incentives through privatization. Instead, over half the population is now impoverished in a country where poverty had been largely non-existent, life expectancy has dropped, and GDP has halved.

Mainland China, sustaining one of the world's highest rates of per capita GDP growth over the past two decades, in contrast, has maintained public ownership while avoiding the rigidities of planned economic decision-making since the ascendancy of Deng Xiaoping. Peasants are largely in charge of economic decision-making at the countryside (still home to the majority of China's population), not planners. In turn, they are able to spend their surplus capital on consumer goods. Socialist enterprises at the local level, known as Township and Village Enterprises (TVEs), and state-owned enterprises are also profit-maximizing and thus capable of deciding for themselves the source of inputs, the destination of outputs, the amount of funds geared toward labor allocation, and what to produce. Subsides, however, still prop up many money-losing state-owned enterprises (SOEs) which are often still overseen by planning ministries. While mainland China has not reached the high level of industrialization and urbanization as rapidly as seen in the Soviet Union under Stalin, it seems to be avoiding the Soviet economy's record of poor productivity and rigidity seen since the late 1970s.

Thus, socialism is not necessarily the economic system that failed in the Soviet Union, but rather a system of administrative command or planned economic decision-making. The more complex the Soviet economy grew under the auspices of the planners, the more unfeasible it simply grew to plan every economic decision in the highly industrialized nation covering such a huge geographical expanse. Planning might have transformed a nation of peasants into an industrial superpower, but it failed to supply all the goods demanded by a population growing accustomed to increasingly better living standards once the economy had achieved a high level of industrial development.

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