3-GORBACHEV+Huang,+Benson


 * Foreign trade industries & COMECON **


 * By: Benson Huang **

__**1. What was the situation for that group/institution before Gorbachev became Premier? **__

The 1971 Comprehensive Program incorporated elements of both the market and the plan approaches. Following the market approach, the Comprehensive Program sought to strengthen the role of money, prices, and exchange rates in intra-Comecon relations and to encourage direct contacts among lower level economic entities in the member countries. At the same time, the Comprehensive Program called for more joint planning on a sectoral basis through interstate bodies that would coordinate members' activities in a given sector, emphasizing the need for multilateral projects to develop new regional sources of fuels, energy, and raw materials. Such projects were to be jointly planned, financed, and executed.

The Comprehensive Program introduced a new concept in relations among members: "socialist economic integration." Section I, Paragraph 2 of the Comprehensive Program refers to the need "to intensify and improve" cooperation among members and "to develop socialist economic integration." This phrasing, which has since become standard, implies that the latter is a new and higher level of interaction, "a process of the international socialist division of labor, the drawing closer of [member states'] economies and the formation of modern, highly effective national economic structures." The Comprehensive Program avoids, however, the suggestion of ultimate fusion of members' economies that had been contained in the 1962 Basic Principles. It sets limits to the integrative process in the following terms: "Socialist economic integration is completely voluntary and does not involve the creation of supranational bodies."

M. Funke is a professor of economics at Hamburg University in GDR (East Germany). This is analysis of the Comprehensive Program in 1973:

//“1) Experience with the foreign trade enterprise Unitechna (5) confirms the indispensability of timely organization of collaboration with the appropriate foreign trade enterprises of other COMECON countries, that is, this collaboration should be organized when specialization and cooperation contracts are still in the preparatory stage. It is the joint task of our foreign trade enterprises and those of the other COMECON countries to begin quite early, i.e., when the particulars of agreements are being prepared in the COMECON agencies or in the bilateral economic committees, to create conditions ensuring smooth commodity exchange. In addition, since last year an agreement has existed among the foreign ministries to which foreign trade enterprises may appeal if difficulties should arise. //

//2) Furthermore, the foreign trade enterprises are responsible for profitability calculations in the preparation of specialization agreements and contracts. The MAW has already made certain stipulations in this respect, and a general government regulation is currently in preparation.” // - M. Funke and R. Seidel. //Soviet and Eastern European Foreign Trade//, Vol. 9, No. 3 (Fall, 1973) , pp. 50. 

From the document, a further principal area of activity in foreign trade enterprises is the economic agreements on specialization and cooperation in production that are to be prepared and concluded jointly with the Association of Nationally Owned Enterprises. The section of Comecon collaboration suggests that it is important for the alliance to support each other during early stages, without taking over a country’s identity. Without the assurance of “smooth commodity exchange,” Comecon members will face a decline in economic progress.

However, Brezhnev claimed in 1976 that the Soviet economy faced declining growth due to slow technological progress at home hence the plan emphasised the need to buy foreign technology. In addition, Comecon countries ended their 1981-85 five-year plans with decreased extensive economic development, increased expenses for fuel and raw materials, and decreased dependency on the West for both credit and hard currency imports.

__**2. How did that group/institution interpret the application of those policies to it? **__

In May 1985, Gorbachev gave a speech (economic acceleration) in Leningrad, during which he admitted the slowing down of the economic development and inadequacy of living standards. Gorbachev introduced many changes that would enable the foreign trade complex to better support his economic policy of acceleration. The new joint venture law, passed on January 13, 1987, opened up the Soviet economy to foreign participation, particularly in manufacturing. It was believed that the experience gained in such ventures would facilitate integration into the world economy. Specifically, through upgraded production processes, the Soviet Union could export more competitive manufactured goods and decrease its dependency on energy and raw materials to earn hard currency.

Peter Boettke is a University Professor of Economics and Philosophy at George Mason University. In his book Why Perestroika Failed, Boettke highlights an important comparison of early 20th century USSR to Gorbachev’s USSR:

“//Even if the US and the West had reduced the military stakes in the 1980s, the Soviet economy was doomed to fail. The Soviet system was structurally weak since its founding and collapse was inevitable. The economic fact that, as Aleksandr Zaychenko stated, ‘Russians today [in 1989] eat worse than did Russians in 1913 under the Czars’ had little to do with the military strains of the Cold War and everything to do with the structural problems of socialist economic institutions.7 The illusion of Soviet economic growth and progress was due to the failings of aggregate economics, in general, and an odd combination of ideas and interests in academic discussions which did not allow dissenting voices to be heard, in particular. In fact, the whole peculiar art of Soviet economic management amounted to the production, and distribution of this illusion.//” <span style="font-family: 'Times New Roman',Times,serif;">- Boettke, Peter J. //Why Perestroika Failed//. London: Routledge, 1993. 4. 2003. Web. <[]>.

<span style="font-family: 'Times New Roman',Times,serif;">Through this analysis, it is important to notice the facade of USSR’s economic prowess. By viewing statistics, observers can notice that Gorbachev is overestimating the ability of Comecon and its foreign trade industry/economy. Thus, the institution also falsely believed that it could handle the radical economic reform. By 1987 Comecon's Comprehensive Program had undergone considerable change. Multilateral planning faded into traditional bilateral cooperation, and the Bucharest formula for prices assumed a revised form. The 1985 Comprehensive Program for the Development of Science and Technology or, as some Western analysts call it, the "Gorbachev Charter," was Comecon's new blueprint for taking a firm grip on its future. Experience in the early 1980s showed that turning to the West and Japan for technological advancement put Comecon in a very dangerous position because it pulled the East European members further away from the Soviet Union and threatened to leave the entire organization at the mercy of the West.

<span style="font-family: 'Times New Roman',Times,serif;"> The purpose of the 1985 program was to offset centrifugal forces and reduce Comecon's vulnerability to "technological blackmail" through broadened mutual cooperation, increased efficiency of cooperation, and improved quality of output. The institution interpreted the ideas of Perestroika and Uskorenie as reforms that would radically allow the Soviet Bloc to become part of the global market. However, tensions arose during this period because of reality of the USSR’s situation. While they were for the economic acceleration, many viewed the expansion as vulnerable and idealistic.

__**<span style="font-family: 'Times New Roman',Times,serif;">3. How did the Soviet state apply those policies to that group/institution, and what were the effects? **__

<span style="font-family: 'Times New Roman',Times,serif;">In the 1980s, Comecon sessions were held on their regular annual schedule. The two most notable meetings were the special sessions called in June 1984 and December 1985. The first summit-level meeting of Comecon member states in fifteen years was held with much fanfare on June 12–14 June 1984, in Moscow. The meeting was held to discuss coordination of economic strategy and long-term goals in view of the "differing perspectives and contrary interests" that had developed among Comecon members since 1969. More specifically, the two fundamental objectives of the meeting were to strengthen unity among members and establish a closer connection between the production base, scientific and technological progress, and capital construction. However, despite the introduction of proposals for improving efficiency and cooperation in six key areas, Western and some Eastern analysts claimed that the meeting was anticlimactic and even a failure.

<span style="font-family: 'Times New Roman',Times,serif;">The 1985 Comprehensive Program for Scientific and Technical Progress and the rise to power of Soviet general secretary Mikhail Gorbachev increased Soviet influence in Comecon operations and led to attempts to give Comecon some degree of supranational authority. The Comprehensive Program for Scientific and Technical Progress was designed to improve economic cooperation through the development of a more efficient and interconnected scientific and technical base. Gorbachev and his economic mentor Abel Aganbegyan hoped to make "revolutionary changes" in the economy, foreseeing that "science will increasingly become a 'direct productive force', as Marx foresaw… By the year 2000… the renewal of plant and machinery… will be running at 6 percent or more per year."

<span style="font-family: 'Times New Roman',Times,serif;">The program was not a success. "The Gorbachev regime made too many commitments on too many fronts, thereby overstretching the Soviet economy. Bottlenecks and shortages were not relieved but exacerbated, while the East European members of Comecon resented being asked to contribute scarce capital to projects that were chiefly of interest to the Soviet Union…" Furthermore, the liberalization that by June 25, 1988 allowed Comecon countries to negotiate trade treaties directly with the European Community (the renamed EEC), and the "Sinatra doctrine" under which the Soviet Union allowed that change would be the exclusive affair of each individual country marked the beginning of the end for Comecon.

<span style="font-family: 'Times New Roman',Times,serif;">Mikhail Gorbachev delineated his concerns about the growing influence of Western goods on Eastern bloc countries:

<span style="font-family: 'Times New Roman',Times,serif;">“//The HPR [Hungarian People's Republic] and the PPR [Polish People's Republic] have a volume of differentiated trade with the West three times as large as we have. We look at them askance when they walk away toward the West, but we cannot replace [Western goods] with anything. In COMECON [Council for Mutual Economic Assistance] we almost have no trade. Only primitive exchange. The essence is in oil [from the Soviet Union].... In the European Union there is a market, but not in COMECON. They [Eastern Europeans] even sell us food for currency...//

<span style="font-family: 'Times New Roman',Times,serif;">//In relations with COMECON we must take care, first of all, of our own people. It has become excessively hard for us to conduct business as we have been doing for the last decades. The program [of socialist integration] is dead....//” <span style="font-family: 'Times New Roman',Times,serif;">- Mikhail Gorbachev, "Gorbachev Discusses the Impact of Western Goods in the Eastern Bloc." //Making the History of 1989//, # 152.<https://chnm.gmu.edu/1989/items/show/152>

<span style="font-family: 'Times New Roman',Times,serif;">It is important to note that Gorbachev's message demonstrates Soviet concern over the new directions that Eastern European countries were taking in the late 1980s. Business as usual, as Gorbachev noted, no longer was sufficient to maintain the economic relationships that had been in place for many decades. This document also shows that Eastern bloc countries turned to the West for economic trade long before the final collapse of communism in the region.


 * __<span style="font-family: 'Times New Roman',Times,serif;">4. What was the significance of Gorbachev’s reforms as it pertained to that group/institution? __**

<span style="font-family: 'Times New Roman',Times,serif;">Although the Revolutions of 1989 did not formally end Comecon, and the Soviet government itself lasted until 1991, the March 1990 meeting in Prague was little more than a formality, discussing the coordination of non-existent five-year plans. From January 1, 1991, the countries shifted their dealings with one another to a hard currency market basis. The result was a radical decrease in trade with one another, as "Eastern Europe… exchanged asymmetrical trade dependence on the Soviet Union for an equally asymmetrical commercial dependence on the European Community." Gorbachev's economic changes did not do much to restart the country's sluggish economy in the late 1980s. The reforms decentralized things to some extent, although price controls remained, as did the ruble's in convertibility and most government controls over the means of production.

<span style="font-family: 'Times New Roman',Times,serif;">By 1990 the government had virtually lost control over economic conditions. Government spending increased sharply as an increasing number of unprofitable enterprises required state support and consumer price subsidies continued. Tax revenues declined because republic and local governments withheld tax revenues from the central government under the growing spirit of regional autonomy. The elimination of central control over production decisions, especially in the consumer goods sector, led to the breakdown in traditional supply-demand relationships without contributing to the formation of new ones. Thus, instead of streamlining the system, Gorbachev's decentralization caused new production bottlenecks.

<span style="font-family: 'Times New Roman',Times,serif;">Gorbachev reflecting on the USSR’s collapse and “New Thinking”:

<span style="font-family: 'Times New Roman',Times,serif;">“//In late May 1986, we discussed the new role of Soviet diplomacy at a conference held at the Ministry of Foreign Affairs. . . The Minister of Foreign Affairs [Shevardnadze] made a speech which was then discussed by the participants, and I later addressed the conference. The gist of my speech was the lagging behind of our international agencies, which did not keep up with the policies and practical steps undertaken by the country’s political leadership. Today I consider this meeting the starting point for the full scale implementation of our ‘new thinking’.//

//<span style="font-family: 'Times New Roman',Times,serif;">We realized it was vitally necessary to correct the distorted ideas we had about other nations. These misconceptions had made us oppose the rest of the world for many decades, which had negative effects on our economy as well as on the public consciousness, science, culture and the intellectual potential of our country. //

<span style="font-family: 'Times New Roman',Times,serif;">//We understand that in today’s world of mutual interdependence, progress is unthinkable for any society which is fenced off from the world by impenetrable state frontiers and ideological barriers. A country can develop its full potential by interacting with other societies, yet without giving up its own identity.//” <span style="font-family: 'Times New Roman',Times,serif; line-height: 1.5;">-Gorbachev, Michael. //<span style="font-family: 'Times New Roman',Times,serif; line-height: 1.5;">Memoirs //<span style="font-family: 'Times New Roman',Times,serif; line-height: 1.5;">. Doubleday, London, 1996, p. 402-3. Print.

<span style="font-family: 'Times New Roman',Times,serif;">Here, Gorbachev admits that the USSR had been going up a blind alley for decades. Here, he recognizes a new way of thinking, that presupposes the concept of just focusing smooth foreign trade industry within one part of the globe. Here, he recognizes that a mutual interdependence is necessary with all aspects of international relations. With the dissolution of Comecon and the collapse of the USSR in 1991, Gorbachev’s radical implementation of restructuring and economic acceleration certainly showed that many of the social benefits given by the enterprises had to be done away with, as they could not make a profit and afford to maintain the benefits, resulting in a stagnant economy occurring simultaneously with a collapsing social welfare system. Gorbachev's reforms did not work and only succeeded in hastening the economic collapse that was inevitable.

__**<span style="font-family: 'Times New Roman',Times,serif;">Bibliography (Documents already cited above): **__

<span style="font-family: 'Times New Roman',Times,serif;">Curtis, Glenn E. "THE COUNCIL FOR MUTUAL ECONOMIC ASSISTANCE." //The Council for Mutual Economic Assistance// (CMEA/Comecon). N.p., n.d. Web. 03 Mar. 2014. <http://www.shsu.edu/~his_ncp/CMEA.html>.

<span style="font-family: 'Times New Roman',Times,serif;">Mongabay.com. Mongabay, n.d. Web. 2 Mar. 2014. <http://www.mongabay.com/history/soviet_union/soviet_union-gorbachev's_economic_reforms.html>.

<span style="font-family: 'Times New Roman',Times,serif;">"Perestroika." Wikipedia. Wikimedia Foundation, 24 Feb. 2014. Web. 03 Mar. 2014. <http://en.wikipedia.org/wiki/Perestroika#Economic_reforms>.

<span style="font-family: 'Times New Roman',Times,serif;">Rosenberg, Jennifer. "Mikhail Gorbachev." About.com 20th Century History. About.com, n.d. Web. 02 Mar. 2014. <http://history1900s.about.com/od/people/p/gorbachev.htm>.

<span style="font-family: 'Times New Roman',Times,serif;">"Russia New Thinking: Foreign Policy under Gorbachev - Flags, Maps, Economy, History, Climate, Natural Resources, Current Issues, International Agreements, Population, Social Statistics, Political System." Photius.org. Photius Coutsoukis, 10 Nov. 2004. Web. 02 Mar. 2014. <span style="font-family: 'Times New Roman',Times,serif;"><http://www.photius.com/countries/russia/economy/russia_economy_new_thinking_foreig~1276.html>.

<span style="font-family: 'Times New Roman',Times,serif;">"Tenth Five-Year Plan (Soviet Union)." Wikipedia. Wikimedia Foundation, 5 Dec. 2012. Web. 03 Mar. 2014. <http://en.wikipedia.org/wiki/Tenth_Five-Year_Plan_%28Soviet_Union%29#cite_note-innovation-2>.