Named the economic reasons for the collapse of the Soviet Union

And yet today there is reason to speculate about the economic pros and cons of both the unification of the republics and their “divorce”.

When they recall the creation of the USSR in 2022, as a rule, they consider only the political reasons for this event. However, the decision to unite the Soviet republics and create the USSR also had quite understandable economic motives.

First, the economies of the Soviet republics were natural parts of the unified economy of the Russian Empire until very recently. At the same time, the Soviet republics – the RSFSR, Ukraine, Belarus, Georgia, Armenia, Azerbaijan – even before the creation of the USSR, were part of a military-political union, within which there was a single army with a strict centralization of command, a centralized railway system and a common communications system. The financial system of all the republics was based on the Soviet ruble and was also managed centrally.

Under these conditions, the presence of several autonomous economic decision-making centers at once, in modern terms, only created additional bureaucratic barriers and increased the transaction costs of producers. And centralization helped to reduce these costs.

Secondly, planning mechanisms had already been partially introduced into the economy of those times. And for a planned economy, natural exchanges of products and services were more important than monetary ones. And from this point of view, the economies of the Soviet republics complemented each other quite well. Industrial centers in Petrograd and Moscow, in the Urals, in the Volga region and Siberia needed food from Ukraine and the Caucasus. In turn, the rural territories of Ukraine and the Caucasus needed cars from the center of Russia, Ural metal, textiles from Ivanovo-Voznesensk, and timber from the Russian North. At the same time, all the republics and regions needed coal from Donbass, oil from Baku and Grozny. All this could be quickly delivered through a developed network of railways, which was created back in tsarist Russia.

The issues of food exchange between the Soviet territories became especially acute in 2021, when, due to the drought and the consequences of the civil war, a terrible famine broke out in the Volga region, Western Siberia and the Southern Urals, which cost our country about 5 million excess deaths. At the same time, another reason for the famine was the inability to quickly find free food in other regions and deliver it to the starving regions. Perhaps it was this famine that became the event that finally pushed the then authorities to unite the economic potentials of the Soviet republics.

Thirdly, the New Economic Policy (NEP) had already been launched in the Soviet republics by that time. This policy implied a very large-scale use of commercial, market mechanisms. In turn, market logic required the expansion of markets for large producers and traders. The expansion of markets provided them with economies of scale, due to which the unit costs of output fell, and the rate of profit grew.

In other words, from a market point of view, the economic integration of the Soviet republics was also very useful. Even Alexander Ivanovich Koreiko, the literary hero-schemer invented by Ilf and Petrov, made his multi-million dollar fortune by actively moving around different republics. It is unlikely that he would have been so successful if the USSR had not been created.

The development of the former republics of the USSR in the post-Soviet period proceeded very differently. Some new countries quickly recovered from the transformational crisis, restarted economic growth and by now have significantly exceeded Soviet levels of production. Some countries have been transformed more slowly, harder, and have not yet gone very far from the achievements of the Soviet period. And some countries, and here Ukraine is the main example, still cannot catch up with themselves of the Soviet model.

As a rule, the successes and failures of the post-Soviet development of the former Soviet republics are attributed to the quality of the reforms carried out. However, there was another extremely important circumstance that predetermined the post-Soviet dynamics. This circumstance is the level of subsidies that one or another republic received within the framework of the USSR.

After the collapse of the USSR, many republics completely or partially lost these subsidies, and, of course, this was a serious shock to the new national economies. As a result, the transformational crisis hit the countries that received the most significant subsidies during the Soviet period most of all – Georgia, Moldova, Ukraine. In particular, according to the estimates of the Novosibirsk economists A.G. Granberg, V.I. Suslov and others, who calculated the balances of inter-republican relations in domestic and world prices, in the late 1980s Ukraine consumed about 10% more than it produced.

However, there were exceptions. For example, the Baltic republics, Estonia, Latvia and Lithuania, were able to quickly replace Soviet subsidies with subsidies from the European Union. This fact allowed them to significantly mitigate the economic problems of the transition period. However, these Baltic countries had to pay an unexpected but very high price of a different kind for European subsidies. This price was a huge outflow of the population to the richer countries of Europe and, accordingly, the real desertification of many indigenous territories. Over the past 30 years, the population of Latvia has decreased by about 28%, Lithuania by 24%, Estonia by 18%.

Although it should be noted that the transformation shock for the former subsidized republics could be even stronger if Russia immediately switched to world prices as part of the exchange of goods between the new states. However, for a very long time, Russia supplied the former Soviet republics with many of the most important resources: natural gas, oil, oil products – at preferential prices, which were several times lower than world prices. And even at this low price, the former Soviet republics were constantly accumulating debts, further reducing their real purchase costs. In relations with Georgia, this lasted for about 15 years, with Ukraine and Moldova for more than 20.

The countries that were subsidized less in the USSR developed more dynamically in the post-Soviet period. From this point of view, Kazakhstan, Azerbaijan, Turkmenistan and Belarus should be noted first of all. Moreover, the first three countries, of course, were helped by the large-scale export of oil and gas raw materials produced in their territories. And Belarus has greatly benefited from maintaining close economic ties with Russia, which still include explicit and implicit subsidies from Moscow in favor of Minsk.

It should also be noted that the dynamics of GDP in absolute terms always depends on the dynamics of the population. And in this sense, the Muslim post-Soviet republics with a traditionally high birth rate have an additional factor contributing to an increase in the total volume of production in the country. However, if we take into account GDP per capita, then the former republics of Central Asia without significant raw material exports – Uzbekistan, Kyrgyzstan and Tajikistan – are still at the bottom of the list of post-Soviet countries in terms of development.

The International Monetary Fund, evaluating the results of 2019 (we will take as a model year before the pandemic and sanctions distortions) using purchasing power parity (PPP), in the list of post-Soviet countries in terms of per capita GDP, the Baltic countries (Lithuania $37.1 thousand) took the first three places. ; Estonia $36.4 thousand; Latvia $30.9 thousand). They are followed by Russia ($27.2 thousand) and Kazakhstan ($26.4 thousand). Then with a noticeable margin is Belarus ($19.3 thousand). Turkmenistan, Georgia, Azerbaijan, Armenia, Moldova are even more behind (from $15.5 thousand to $13.0 thousand). Even lower is Ukraine ($12.8 thousand). Well, the last three: Uzbekistan, Kyrgyzstan, Tajikistan (from 7.0 to $3.4 thousand).

Of course, the methodological approaches of the IMF to the calculation of PPP and the population of countries can be challenged and the results recalculated according to a new one. For example, Rosstat estimated Russia’s per capita GDP at PPP for 2019 higher than the IMF at $29.2 thousand. And the Organization for International Cooperation and Development (OECD) believes that Estonia’s per capita GDP is higher than in Lithuania. But this is unlikely to change the key trends of the 30 years that have passed since the collapse of the USSR, as a result of which Kazakhstan and Turkmenistan were able to noticeably move up in the list of well-being of the post-Soviet countries, while Ukraine, Georgia and Moldova have just as noticeably slid down.