Oil And Communism

Brad Plumer notes that one underanalyzed factor in the collapse of the Soviet Union was the machinations of OPEC. For reasons that had nothing to do with the Soviet Union, Saudi Arabia took some steps in 1985 that absolutely devastated the Soviet oil industry and massively cut Soviet hard currency earnings. That, says Brad, helps explain why the USSR started coming apart in the late 1980s instead of, say, ten years later

The flipside of this, which Brad seems to overlook, is the role OPEC policy played in propping the USSR up in the 1970s. The supply disruptions of the 70s massively increased the price of oil, but didn't involve any serious disruptions in the supply of Russian oil. The result was a bonanza for the Soviet government which was arguably crucial to the sustainability of Communism à la Brezhnev. Sufficient revenues were flowing into state coffers to permit adequate consumption of public services and basic goods notwithstanding the fact that none of the other sectors of the Soviet economy were really producing much of anything in a tolerably efficient manner. This made it possible to continue running large, worthless enterprises as de facto "workfare" schemes and cover up the fact that nothing was really working. Even better, since these jobs were controlled by the state, the political apparatus' ability to control access to employment worked as a kind of "soft" coercive measure that was able to enforce loyalty to the regime without recourse to Stalinesque large-scale hard coercion.

Many Russians who haven't exactly made it in the Brave New World of entrepreneurship, crony capitalism, and gangsterism still look back to the Brezhnev era as the salad days of Russian life. And in many ways it was. If, like most people, you're not terribly interested in politics things were basically fine. If you followed orders and didn't speak your mind about public affairs and ideas, you could go about your business, and were guaranteed a job and access to a standard of living that, though poor by American standards, was still quite good by world standards, especially at a time when many countries we now think of as "developed" (Ireland, South Korea, Spain, etc.) were still relatively poor themselves. Meanwhile, all this was happening as the economies of the rich world suddenly started performing extremely poorly.

As it happens, this was all totally unsustainable and, in fact, it was not sustained. But just as in America, political leaders get both credit and blame for economic conditions that aren't really under their control. As the oil boom evaporated, it became necessary to start looking at ways to get the sectors of the economy that actually employed the vast bulk of the population to function tolerably. It was no longer possible to just let the oil industry subsidize everything else. And of, course, controlled reform didn't work.

There are at least two interesting issues posed by this. One is that if the supply shocks of the seventies somehow hadn't happened, would the Soviet Union have fallen much sooner? Quite possibly yes. But if it had, things would have taken a different turn. Between 1973 and 1989 there were a lot of demographic shifts inside the USSR that reduced the proportion of Russians in the whole pie. The 80s also saw a lot of developments in the Communist periphery, notably Poland. The result was that when things did fall apart, they had an outside-in quality, whereas an earlier denoument might have been more a collapse-at-the-center scenario. The other thing is that in the real world Communism managed to fall after a period in which key portions of the non-Communist world (Southern Europe, the Asian fringe, Latin America) had started moving decisively toward democracy. If Communism had started unraveling at a time when the "free world" was still substantially unfree, the eventual consolidation of democracy in Eastern Europe might not have played out so favorably.

The other issue is whether the Soviet government of the 1970s couldn't have taken advantage of the situation to initiate reforms under more favorable terms. If you need to make wrenching changes, it's usually better to try and implement them before the dawning of an economic crisis. Oil money, instead of floating a non-functioning economy, could perhaps have been used to grease the wheels of economic reform. That might have allowed for a China-style transition to an open economy with a closed political system.