PART TWO

The End of the Cold War

CHAPTER 6

The Socialist Perestroika

FOR MUCH OF his adult life, Abel Aganbegian lived on the edge of polite society in the Soviet Union. After becoming the leader of the Novosibirsk Institute of Economics and Industrial Organization in Siberia in 1964, he had used his sharp mind and prolific pen to push his higher-ups in Moscow to reform the Soviet economic system. Two thousand miles away from the capital, Aganbegian turned the Novosibirsk Institute into a hothouse of economic ideas subversive to the Marxist-Leninist traditions that dominated official thinking. By the early 1980s, however, he had little to show for his efforts besides a series of run-ins with party conservatives who beat back his calls for change at every turn.¹

In 1985, the rise of Mikhail Gorbachev transformed his fate. The new general secretary brought Aganbegian in from the cold, and by the late 1980s, Aganbegian had become one of the leading advocates of the reform project that had set the world ablaze—perestroika. On both sides of the Iron Curtain, people eagerly wanted to know what, exactly, perestroika was, and it fell to advisors like Aganbegian to provide an answer. In his 1989 book, Moving the Mountain, he did just that. “The central problem of the new economic system,” he wrote, was “to make people care about the results of their work” and “to inculcate . . . feelings of personal responsibility.” Over the seventy years of its existence, the Soviet Union had failed to develop “an effective system of individual incentive and responsibility,” and the ultimate task of perestroika was to create one. If this sounded like a goal worthy of Ronald Reagan or Margaret Thatcher, the parallel to the capitalist experience was not lost on Aganbegian. “If I were asked my opinion of the new policies of the Conservative government [in the United Kingdom], often labelled Thatcherism,” he wrote, “I would generally have to give them quite high marks.” Aganbegian believed that Thatcher had undertaken the “reconstruction, the perestroika, so to speak, of Britain’s economy,” so there were similarities between her predicament in London and the Soviets’ own trials and travails in Moscow.²

Gorbachev shared his advisor’s understanding of the parallels between the capitalist and the communist challenges in the 1980s, and so too does this chapter. Perestroika was an ideology of economic discipline that aimed to achieve a renewal of economic growth by implementing painful domestic reforms. In seeking to launch an economic boom by significantly reducing the state’s role in the Soviet economy and society, perestroika was, in fact, a socialist version of supply-side economics. Perestroika aimed to discipline the postwar Soviet social contract of full employment, stable prices, and heavy state subsidy and intervention in the economy.³ It was, in short, the socialist form of the politics of breaking promises.

Despite its architects’ aspirations, however, perestroika failed miserably because Soviet leaders failed to accomplish the task at the heart of their new ideology: to carry out painful economic reforms. Though they recognized the economic need for discipline, Soviet leaders consistently shied away from imposing disciplinary policies like price increases, bankruptcies, and unemployment because they feared the domestic political backlash.⁴ Gorbachev tried both to build popular support for the difficulties of economic reform by democratizing the Soviet political system, and he tried to reform communist ideology to account for a more coercive social contract, but he soon found himself unable to transgress the popular will and ideological legacy of Marxism-Leninism. Unlike Reagan and Thatcher, he had no easy recourse to an ideological tradition of liberalism that prized individualism and made a virtue out of economic discipline. The result was an economy that was anything but disciplinary: in the four short years between Gorbachev’s accession to power in 1985 and the revolutionary events of 1989–1990, the Soviet economy spiraled into inflationary chaos that left the Soviet leadership wildly unpopular at home and dangerously dependent on capital from abroad.

This descent into dependence played an important role in the end of the Cold War because it significantly weakened the Soviet Union’s ability to project power and influence around the world. As Gorbachev sought to break promises at home, he also aimed to do so abroad. As we have seen, by the early 1980s, the Soviet Union’s material burden of its allies and the arms race had become too much to bear, and the new general secretary began an urgent search for relief from both. The result was his “new thinking” in Soviet foreign policy and a series of developments that shocked the world: the explicit repeal of the Brezhnev Doctrine in Eastern Europe, a diplomatic campaign to rid the world of all nuclear weapons, the signing of the Intermediate-Range Nuclear Forces (INF) Treaty, and the unilateral withdrawal of Soviet armed forces from the European continent. By the time revolutionary upheaval shook the world in 1989, the Soviet Union was on the verge of bankruptcy, and this dramatically curtailed the Kremlin’s ability to slow or stop the changes unfolding in Europe.

The aspiration to reform the Soviet economy did not begin with Gorbachev. As far back as the mid-1960s, Soviet premier Alexei Kosygin had introduced a series of economic reforms aimed at decreasing government intervention in the economy; increasing enterprise independence, output, and profitability; and incentivizing workers to be more productive by linking wages to performance. These reforms were met with a wave of resistance from the party and government bureaucracy, and by the end of the decade, they disappeared into the belly of state administration. General Secretary Leonid Brezhnev did his part to bury Kosygin’s efforts, and he spent his decade and a half at the helm of the Soviet Union using bureaucratic platitudes and the 1970s oil wealth to smother all attempts to reform the Soviet economy along more disciplinary lines.⁵

Only the conjuncture of the economic crisis of the early 1980s and Brezhnev’s death in November 1982 reopened the door to meaningful economic reform. As in capitalist countries, deteriorating economic performance led to a broad-based search for “new thinking” in economics and politics, and many of the ideas Gorbachev would advocate in the late 1980s had begun to be discussed at the highest levels of the party and government early in the decade.

The essence of reform lay in putting the country on a path toward intensive economic growth: the production of more output with fewer inputs through increases in productivity. The Soviet economy had been built on a model of extensive growth—the addition of increasing quantities of land, labor, and capital to economic production to yield increasing amounts of finished products—but as growth of those inputs slowed in the late 1970s and early 1980s, the challenge facing Soviet economic planners became one of designing an economy that grew because of efficiency rather than resources. Though Soviet planners were loath to recognize it publicly, they understood that intensive growth would inevitably require coercing Soviet workers and enterprises into being more productive. As Aganbegian eventually wrote, the country had “not found the mechanism to ensure that people would be highly motivated in socialist conditions.”⁶ Putting the country on a path of intensive growth would require finding such a mechanism.

Capitalism had four extremely powerful stimuli that motivated workers and corporations to care about their output: private profit, corporate bankruptcy, wage inequality, and unemployment. The power of these stimuli was communicated in the economy through a system of flexible, market-based prices. Everything under capitalism—land, labor, and capital—had a price that, for the most part, responded to changes in supply and demand. Most importantly, when the price of something like oil, labor, or credit went up, economic actors had an incentive to use less of it, so flexible prices drove efficiency.⁷

These four stimuli and the flexible price system that mediated them were the foundations of capitalist economies, but they had traditionally been viewed as anathema to communist theory and practice. Communists had considered private profit, corporate bankruptcy, severe wage inequality, and working-class unemployment to be the foundations of capitalist exploitation and had effectively banished them from their societies. Communist states confiscated most enterprise profits, supported loss-making enterprises to prevent them from going bankrupt, leveled out wages between low-performing and high-performing workers, and guaranteed every citizen the right to employment. Rather than letting prices change in response to supply and demand, communist governments fixed them to rid their economies of what they saw as capitalism’s chronic tendency toward instability and crisis. In short, none of the stimuli that drove capitalist growth and efficiency were present in communist economies because the foundational promise of communism had been to protect workers from the exploitation of the capitalist system.

Soviet reformers decided that these stimuli would have to reintroduced, and the 1980s saw a series of progressively more radical attempts to do so. These solutions first began to form under the leadership of Gorbachev’s mentor within the party, Yuri Andropov.⁸ Upon assuming the post of general secretary in the wake of Brezhnev’s death, Andropov made improving the economy his top priority. Fitting his mold as the former head of the KGB, he first sought to fix the economic morass through discipline of a traditional, top-down Soviet variety—more severe penalties for worker absenteeism and drunkenness, greater punishments for criminality, and a campaign to rid the party of waste and corruption.⁹ Even as Andropov imposed traditional solutions, however, he also authorized Gorbachev, a rising star in the Politburo, and Nikolai Ryzhkov, a young party policy maker who would serve as Gorbachev’s prime minister, to undertake a comprehensive review of the country’s economic problems and seek out new solutions from its top economists.¹⁰

The first reform they considered was one that had haunted communist governments throughout their existence and would haunt perestroika as well: price increases. By 1982, the party and government bureaucracy had readied a set of price increases for the general secretary’s authorization, and with Brezhnev’s death, it fell to Andropov to make the decision. Though Gorbachev and Ryzhkov recognized the economic reasons for pursing the increases, they counseled Andropov to refrain from moving ahead because of the fraught politics that price increases would entail. Like their counterparts in Warsaw, Budapest, and East Berlin, they feared potential unrest, and on their recommendation, Andropov canceled the price-increase plan.¹¹ It was but the first in a long string of moments in the 1980s when the Soviet leadership would shy away from disciplinary reforms because of their potential political effects.

The same held true for three other foundational reforms: enterprise autonomy, labor force “rationalization,” and social spending. These were the communist ways of referencing profit, bankruptcy, unemployment, and welfare, and during Andropov’s time, Soviet officials began to discuss them with increasing frequency and urgency. The party’s 1983 economic program committed the government to doubling the economy’s productivity over the next two decades and expanding “the economic autonomy of associations and enterprises” to “improve production efficiency and quality of labor.”¹² A year later, an economic strategy document prepared for Gorbachev and Ryzhkov encouraged the creation of incentives for enterprises to carry out “production tasks with a smaller number of workers.”¹³ By one estimate, fifteen to twenty million surplus workers were weighing down a bloated economy, and they would have to be squeezed out of the production process if the country was to begin to grow intensively.¹⁴

Production with fewer workers would, in turn, require each remaining worker to work harder and more productively. When discussing ways to motivate the workforce, Soviet officials sounded like their ostensible neoliberal enemies on the other side of the Iron Curtain. “Socialism is not collective philanthropy,” a senior Gosplan economist wrote to Gorbachev in early 1984. “The view is becoming more and more common among economists,” he continued, that the “free provision of goods” like housing, education, and health care “weakens incentives to work.” Instead of giving these benefits to workers for free, economists now contended that any “able-bodied person in a socialist society should earn any good through their work.”¹⁵ Ronald Reagan or Margaret Thatcher could not have stated their own views about postwar capitalist societies any better.

Revising the social contract, however, was ideologically and politically difficult, so Andropov moved slowly in implementing fundamental changes. He authorized a limited number of enterprises to experiment with independence from the state plan and “self-financing” (i.e., operating without subsidies from the state). Their initial performance under these new conditions was good—productivity went up and costs went down—but the health of the Soviet leadership hindered further reform. Just fifteen months after he took office, Andropov died in February 1984 and was replaced by a bastion of the country’s old guard, Konstantin Chernenko. Even older than Andropov and ill from the moment he took office, Chernenko lasted just thirteen months in office before dying in March 1985. Though Gorbachev, Ryzhkov, and their reformist allies were able to continue a modicum of work under Chernenko’s infirmed watch, they could not contemplate reforms of the entire system.¹⁶

Gorbachev’s accession to general secretary was meant to change this. Party leaders chose him over older, more conservative options precisely because they wanted to break from the static course set by Brezhnev.¹⁷ His election was the first act of Soviet “new thinking,” as the leadership searched for new ways out of their old domestic and international predicaments. “It seems as if we’ve got a leader at last!” Defense Minister Sergei Sokolov raved to Chief of the General Staff Sergei Akhromeev shortly after Gorbachev’s rise.¹⁸ Both men would later have substantial problems with their new leader, but for the moment, they embraced him as a symbol of long-overdue change. For his part, Gorbachev was firm in his conviction that change would come, but he harbored no radical or specific agenda for bringing it about.¹⁹ His opinion of the country’s past three geriatric leaders was so dim that he assumed his mere presence atop the Soviet hierarchy and some tinkering around the edges of the system would launch the country to new heights.²⁰

Over his first two years in office, he began to use two words, uskorenie (acceleration) and perestroika (restructuring), to signal the broad outlines of his agenda. He filled in that agenda with a series of measures to increase investment, make workers’ wages more responsive to the quality of their work, and increase the quality of Soviet products through stricter government oversight. None of these moves were radical, and none were effective. It is easy, in retrospect, to associate Gorbachev with the fundamental change of his later years, but through the end of 1986, he did little on the domestic front to dismantle the system he inherited.²¹

Instead, three developments during Gorbachev’s first eighteen months in office—one very traditional discipline campaign and two events completely out of his control—dramatically altered the fiscal and financial health of the Soviet Union and forced the leadership to reach for radical solutions by late 1986. First, the most consequential policy of Gorbachev’s early tenure was his failed anti-alcohol campaign, which began in May 1985. This was, as one author has written, “a full-fledged disciplinary campaign of the old style” that sought to increase workers’ productivity by decreasing their access to the bottle.²² Though it failed to prevent Soviet citizens from drinking (the black-market liquor business boomed), it did open a gaping hole in the state budget by causing tax revenue from alcohol sales to plummet.

Then, in late 1985, the world price of oil collapsed. By March 1986, it was two-thirds lower than the previous autumn. This led to a 9 billion ruble drop in Moscow’s export earnings in the first half of 1986 and added 4 billion dollars to the country’s foreign debt.²³ Ryzhkov, now prime minister in charge of the economy, diverted oil from the domestic to the world market to stem the government’s losses, but this left less energy for domestic production and prohibited the import of Western consumer goods to incentivize Soviet workers to work more productively.²⁴

Then, on April 26, 1986, the no. 4 light-water nuclear reactor at the Chernobyl nuclear power plant in Ukraine exploded, leading to the worst peacetime nuclear disaster in world history. Chernobyl was a catastrophe of many dimensions—human, ecological, and ideological—but its economic impact on the Soviet state was profound. A little more than a month after the accident, the costs were already calculated at 3 billion rubles, and they would only escalate over time.²⁵

With the setbacks compounding, Gorbachev and his Politburo comrades sounded by the fall of 1986 like they were overseeing an escalating crisis, not a budding revolution. On October 30, the general secretary told his colleagues that the country had lost 13 billion rubles in 1985 from the fall of energy export prices. In the past two years, he continued, imports had declined from 24 to 13 billion rubles. “Never before in the history of the country has this happened,” he rued. Yegor Ligachev, who would soon lead the conservative resistance to Gorbachev, could only agree. “The financial economy of the country is in a very difficult situation, to say the least,” he said. Gorbachev blamed the crisis on the fact that there was “more money than goods in the country,” leaving people with a “weakened interest in work.” The entire point of economic reform efforts since the early 1980s had been to motivate Soviet workers, but circumstances had now conspired to make them the least motivated workforce in the country’s history. “The situation has us by the throat,” he concluded.

At this moment of crisis, Gorbachev professed convictions to his comrades that would come to define his entire foreign and domestic policy. First, with regard to perestroika, he said that “the main thing is do not retreat, do not waver, no matter how difficult” the tasks might be. Where others may have turned back, he was committed to pressing onward. As domestic reform deepened, he believed the country needed to return to economic health by paring down its international commitments. “We must be extremely careful in matters of assistance to other countries,” he said. There should be “no promises to anyone.” Military spending was also too high and was crippling the domestic economy. “The peculiarity of this five-year plan is that it is necessary to combine ‘both guns and butter.’ It is difficult, very difficult,” he said.²⁶ Before military spending could be cut back, Gorbachev knew he would have to ease the tensions of the Cold War.

“Perestroika,” Gorbachev wrote in his memoirs, “would have been impossible without . . . the creation of propitious international conditions.”²⁷ From his first day in office, he held to this fundamental view. His foreign policy was meant to serve his domestic plans, which required a de-escalation of the Cold War, a scaling back of the nuclear arms race, and a retreat from the burdens of empire. He was not alone in holding such convictions. Important elements of the party, foreign policy, and military elite perceived a growing divergence between capitalist and communist capabilities, and they welcomed Gorbachev’s efforts to relieve the country of these burdens.²⁸

The events of the first half of the 1980s had definitively altered the balance of power between the Soviet Union and the United States. The potent combination of the Volcker Shock, the Reagan financial and military buildups, and the fall in Soviet oil production and world oil prices had created two blocs of vastly different material capabilities and economic outlooks. Reagan had found a way to eliminate the choice between guns and butter for the United States by borrowing on a massive scale from foreigners, and some Soviet officials concluded that the limitless material capabilities of the United States would strengthen the Reagan administration’s negotiating position on arms control. “It can be assumed,” a 1987 report from the influential United States and Canada Institute concluded, “that cost-saving considerations will not be a factor in the coming years that would significantly affect the current position of the US leadership in the field of arms limitation.”²⁹

For the Soviets, by contrast, cost-saving considerations were the entire basis of their push for arms control. Moscow could, and did, borrow on international capital markets, but no country, let alone the leading anticapitalist state in the world, could match the advantage the United States derived from its position at the heart of global capitalist finance. If the Kremlin wanted to match Washington by devoting even more resources to its already massive military-industrial complex, it would have to take resources away from investment in its civilian economy and the standard of living of the Soviet people.

From these structural considerations, Gorbachev formulated the foundational goal of his foreign policy: to prevent a new stage of the nuclear arms race. Gorbachev regularly talked about the importance of “the human factor” in his superpower diplomacy with Reagan, and scholars have generally followed his lead to argue that the personal relationship between the two leaders was essential to producing the nuclear arms control agreements of the last years of the Cold War.³⁰ But while there is no doubt that the warm working relationship between the two leaders was important, the archival record makes it clear that all the breakthroughs in arms control in the late 1980s derived from Soviet concessions that stemmed from the Kremlin’s desire to ease the military burden on the economy. “We are at the limits of our capabilities,” Gorbachev told the Politburo in October 1986.³¹ Therefore, “the most important task” was “to derail a new phase of the arms race.” If a new stage began, it would be “a loss everywhere,” especially in the “wearing down of our economy. And this is unacceptable. If they impose a second stage of the [arms] race, we will lose!”³² With a new team of foreign policy advisors, including Georgian reformer Eduard Shevardnadze as foreign minister, Gorbachev pursued nuclear arms control from his first day in office with tactical brilliance, ideological innovation, and a great deal of rhetorical flourish.

It began in Geneva, Switzerland. In November 1985, Reagan and Gorbachev converged on an eighteenth-century chateau on the shores of Lake Geneva to size each other up and present their first proposals. In what would become a recurring (and increasingly untenable) theme of his public diplomacy, Gorbachev stridently denied that the Soviet economy was in any serious trouble and rejected the idea that Reagan’s military buildup could force the Soviet Union to capitulate. Both sides agreed that strategic nuclear weapons should be dramatically reduced, but Gorbachev irritably told the president he would never agree to reduce the Soviet Union’s defenses as long as Reagan pursued his Strategic Defense Initiative (SDI). The next day, Reagan made a formal proposal to reduce each side’s offensive nuclear stockpile by 50 percent and cut back both sides’ capabilities in other categories of weapons as well. Gorbachev assented, but only if Reagan committed to abandon SDI. Reagan would not, so the conference ended short on results.³³

If personal diplomacy was not enough to persuade Reagan, perhaps bold public proposals would pressure him into a deal. On the advice of the chief of the Soviet General Staff, Sergei Akhromeev, Gorbachev announced in January 1986 a proposal to eliminate all nuclear weapons by the year 2000. The plan grabbed global headlines, but the Reagan administration rejected it because it failed their long-standing litmus tests in disarmament talks: it said nothing of the massive Soviet advantage in conventional military forces in Europe, it failed to independently address the intermediate-range nuclear missiles the Soviets had deployed in Europe since the late 1970s, and it continued to insist that the British and French nuclear arsenals be included in the mutual reductions. These had all long been nonstarters for the American side, and they had held up arms negotiations since the early 1980s.

Desperate for progress, Gorbachev gave ground. Over the spring and summer of 1986, as the oil price collapsed, alcohol tax revenues evaporated, and Chernobyl demonstrated the costs and consequences of nuclear fallout, the general secretary matched the drama of his public call for complete nuclear abolition with a series of specific concessions. The British and French arsenals would not have to be included, he told the Americans. Conventional forces could be considered as part of a general reduction and balancing of the two blocs’ armed forces. Most important of all, laboratory research on SDI could continue, as long as the Americans renounced external testing and deployment.³⁴ For Gorbachev, the reasoning behind these moves was clear. “If we don’t back down on some specific, maybe even important issues, if we won’t budge from the positions we’ve held for a long time, we will lose in the end,” he told the Politburo, “We will be drawn into an arms race that we cannot manage. We will lose, because right now we are already at the end of our tether.”³⁵

The trail of concessions led to Reykjavik, Iceland, where Gorbachev and Reagan held their second summit in October 1986. Before leaving Moscow, Gorbachev sketched out his strategy to the Politburo: “The United States is interested in keeping the negotiations machine running idle, while the arms race overloads our economy. Therefore, we need a breakthrough.”³⁶ He flew to Iceland with a bold proposal to immediately halve both sides’ strategic nuclear weapons and remove all intermediate-range missiles from Europe. The Americans were elated at the extent of the concessions. Over the next two days, the two sides approached the precipice of an agreement to eliminate all their nuclear weapons over the next ten years, but it foundered once again on SDI. Reagan could not bring himself to permanently cede the right to deploy the system, and Gorbachev was unwilling to sign away all the Soviet Union’s nuclear weapons without such an assurance.³⁷ The two sides left Iceland stunned at how close they had come to agreement and acrimonious about the mutually perceived absurdities that had kept them apart.

Three weeks later, the Politburo gathered for their October 30 meeting where all agreed that the economy was “in a dire position” and lamented “the necessity to combine both ‘guns and butter.’”³⁸ Reykjavik had now taught them that if they wanted to escape the burden of guns in order to produce more butter, they would have to make more concessions abroad in the years to come.

As he moved to end the arms race with the United States, Gorbachev looked to shed the weight of the Soviet Union’s empire in Eastern Europe as well. The subsidized energy deliveries that had caused so much quiet consternation between Moscow and its allies since 1973 made Gorbachev’s blood boil. As he told the Politburo on August 14, 1986, the Soviet Union’s imperial role left the country “harnessed into slave labor,” extracting raw materials and supplying them to other countries.³⁹ The clearest solution was simple: jettison the rolling price system and settle trade within Comecon in hard currencies at world market prices. But every Soviet leader since the 1970s had known that doing so was sure to bring about the collapse of their empire and influence in Eastern Europe. The poor quality of Eastern European products would be immediately exposed, and the relative price of Soviet oil would increase dramatically, destroying the economies of all the Soviet satellites. Forcing bloc countries “to pay in hard currency,” Gorbachev recognized, “would be catastrophic for them.”⁴⁰

Nevertheless, new thinking about Moscow’s role in the Socialist Bloc was necessary. As with other areas of his policy, Gorbachev’s new thinking for Eastern Europe partially stemmed from his genuine belief in the primacy of “shared human interests” over “class interests,” his respect for human rights, and his general aversion to the old, violent methods of Soviet governance. But the cornerstones of his new policy derived not from the inclinations of idealism but from the realities of economics: Moscow would gradually campaign to move the bloc toward mutually beneficial trade, and it would provide no further economic aid under any circumstances. Most of all, it would officially repeal the Brezhnev Doctrine and respect the sovereignty of bloc countries because it could no longer bear the burden of empire.

Gorbachev wasted little time in signaling to his allies that change was coming. At his first meeting of the Political Consultative Committee, the Warsaw Pact’s highest governing body, in October 1985, he said to his allies, “The possibilities of the Soviet Union supplying raw materials in exchange for finished products from other countries are exhausted.” Going forward, the Soviet leadership would meet its economic “obligations” but would also aim for “balanced foreign trade” in the bloc.⁴¹ In place of subsidized commodity exchange, mutually beneficial economic integration was the only way forward.

As with every other area of policy, the drop in oil prices in late 1985 made this transition more difficult. Just as the five-year average made the intrabloc oil price rise more slowly than the world price when oil prices were rising, it now slowed its fall as well. At nominal prices, this increased the value of Eastern Europe to the Soviet Union by making oil exports to the bloc more valuable than exports to the world market. But real prices told a different story. The average selling price of a Soviet barrel of oil within the bloc in 1987 was twenty-two rubles per barrel. At the official dollar/ruble exchange rate, this valued the oil at thirty-two dollars a barrel, 74 percent higher than the world market price. But because the world valued the ruble much less than the Soviet Union did, the actual dollar/ruble exchange rate was much lower than the official exchange rate, and thus the price of the oil was much lower as well. At the market dollar/ruble exchange rate of sixty cents to a ruble, Soviet oil was only twelve dollars a barrel—quite a bargain compared to the world market price of seventeen dollars. As prices stayed low in the late 1980s, the Comecon price kept dropping too, reaching roughly ten dollars a barrel in 1988 at market exchange rates.⁴² The declining price at the official exchange rate meant the Soviet Union fell into annual trade deficits with its allies in the late 1980s. These deficits, rather absurdly, put pressure on Soviet officials to increase exports to the bloc, even as every communist official knew the Soviet Union was already providing more resources to the bloc than they ever would at world market prices. A switch to hard currency trade would have solved this problem, but Soviet officials were all too aware of the dire political consequences of such a move.

Needless to say, the Soviet leadership took no pleasure in these perverse dynamics, and in 1986 they began to vent their frustration. In August, Gorbachev told his colleagues that they had “lost their way” in economic relations with the bloc and “now had to clean up this mess.”⁴³ Hanging like dark clouds over their considerations were the bloc’s debt problems with the West. As the Poles worked to join the IMF in the summer of 1986, Gorbachev sensed danger but felt powerless to stop it. “If we don’t hold Poland, then we can’t keep the GDR,” he told the Politburo. “We grumble about the Poles’ relationship with the IMF. But what can they do? The debt is $30 billion.”⁴⁴ By October, Ryzhkov was worried but resigned to inaction. The bloc was “crawling to the West—into a trap.” In Poland, “everyone can see what has happened there. Hungary is now on the brink. Bulgaria stopped in front of a precipice. Saved by us.” The Soviet Union was offering “a way out—their integration,” he said, but “they do not want it.” They just wanted “electronics” and “delicacies” from the West, while “we keep supporting them with coal, oil, [and] metal.”⁴⁵

These economic dynamics led directly to new thinking in politics. In 1986 Gorbachev began to advocate letting the bloc countries deal with their problems themselves, no matter the political consequences. In July, he told the Politburo, “What went on before could not continue. The methods that were used in Czechoslovakia [in 1968] and Hungary [in 1956] now are no good; they will not work!” The economy was now “the most important” factor. The Soviets’ influence could “only be ideological, only through example! Everything else is an illusion.” They could no longer use “administrative methods of leadership” because “this kind of ‘leadership’ . . . would mean carrying them on our back.”⁴⁶

Lightening the imperial load became the main theme of a meeting of the heads of state of the Comecon countries in Moscow on November 10–11, 1986. Gorbachev arrived ready to scold his allies for relying on Western credit for economic growth. “It was false,” he said, “to think that our countries’ problems could be solved through the widespread use of loans and technology” from the West.⁴⁷ “We lived on credit,” he told the assembled leaders. “In the last ten to fifteen years, consumption has grown faster than labor productivity in many countries, which means that [national] income has simply been ‘eaten up.’” He recognized the importance of “the social sphere” in communist societies that had, after all, been “created in the interests of the workers.” But socialism could not continue to promise more than it could actually deliver. The problem with living on credit, he told his colleagues, was that “sooner or later one must pay for it.”⁴⁸

Gorbachev now told his comrades that Moscow would not cover the debt bill when it came due. He discussed the Soviet burden in detail. The expenditure required “to maintain the military-strategic balance with imperialism” was “not small,” and “nine tenths of it was covered by the Soviet Union.” In the area of energy and raw materials, “Soviet deliveries . . . almost entirely fulfill the needs of the brother countries.” The imperial burden of arms, energy, and aid limited “the possibilities for solving social problems and raising the standard of living” within the Soviet Union.⁴⁹ At the height of the Polish Crisis, Andropov had concluded that Soviet leaders needed to be concerned with their own country’s development above all others. Gorbachev was now putting his mentor’s principle into practice.

The burden of economics demanded a new form of politics. Gorbachev informed his comrades that the Soviet Politburo had decided to put “the entire system of political relations between the socialist countries on the foundation of equality and mutual benefit.” From now on, the “indispensable principles” of relations among socialist countries would be “the independence of each party, their right to sovereign decision-making about problems of development in their own country, and their responsibility to their own people.” Most importantly, no country would now “claim a special role in the socialist community.”⁵⁰

After already dying in practice in Poland, the Brezhnev Doctrine was now dead in principle too. Describing the meeting to the Politburo in the days that followed, Gorbachev told the group that he had “opened the way for the radical reconstruction of collaboration within the community. Everything will be based on self-reliance.”⁵¹ The days of intervening abroad to protect socialism were over, and this was profoundly within the Soviet Union’s self-interest. “We need this,” he said two months later. “It is in our interest not to be loaded down with responsibility for what is happening, or could happen, there.”⁵²

When and why the Brezhnev Doctrine was repealed has important implications. Contrary to those who argue that its repeal stemmed from Gorbachev’s unique commitment to self-determination, democracy, nonviolence, and human rights, it is clear that the decision was the culmination of a long-running campaign by the collective Soviet leadership to shed the material burden of empire.⁵³ A policy of nonintervention in the Eastern Bloc conformed to Gorbachev’s idealistic plans for glasnost and perestroika within the Soviet Union, but it also aligned with the economically driven understanding of Soviet national interests that had coalesced within the Soviet leadership since the oil crisis of 1973. In fact, combined with Andropov’s decision to foreclose the possibility of military intervention in Poland in 1981, it is possible to conclude that for economic reasons alone, most Soviet leaders in Gorbachev’s position would have withdrawn the Soviet Union from its responsibility to “protect” socialism by the mid-1980s.⁵⁴ Scholars have long assumed that without Gorbachev’s exceptional view of the world, the revolutions of 1989 would not have been possible because the Soviet Union would have intervened to stop them.⁵⁵ This has it backward. By the mid-1980s, it was the policy of intervention in Eastern Europe, rather than nonintervention, that was difficult for Soviet leaders to justify. Completing the work his predecessors had started, Gorbachev withdrew the Soviet Union from its leading role within the Socialist Bloc to focus on improving the material prosperity of Soviet citizens at home.

The same held true for the war in Afghanistan. Gorbachev made ending the war an early priority and received the support of party conservatives and the armed forces. In the fall of 1985, he called for a speedy withdrawal of Soviet forces within the Politburo and heard no objection from Defense Minister Sokolov, who had led the Soviet invasion, or Andrei Gromyko, who had been one of the invasion’s original advocates. By 1986, withdrawal had become a consensus issue within the leadership. In June, when the Politburo agreed to withdraw 8,000 troops from the conflict, it was Gromyko declaring, “This is not our war,” and Gorbachev maintaining that “the result must not look like a shameful defeat.” The leadership discussed plans to pull Soviet troops out of Afghanistan over the next two years, and in assenting to withdrawal, Gromyko admitted the initial invasion had been a mistake. The entire leadership now agreed that the war had become an unwinnable drain on Soviet resources and the armed forces needed to come home.⁵⁶

The troops came home to a financial crisis that was accelerating without relent. The budget deficit reached 6.2 percent of GDP in 1986, funded entirely by “borrowing” from Soviet citizens’ savings at the Soviet state bank.⁵⁷ In reality, this meant printing rubles and monetizing the deficit—a surefire recipe for inflation and, in the Soviet system of fixed prices, widespread shortages of basic goods. By the spring of 1987, the finance minister was informing the Politburo that the country’s financial situation had “reached the point of crisis.” State budget losses from the decline in alcohol sales and the oil price now totaled 30 billion rubles, and state subsidies for food would soon reach 100 billion rubles.⁵⁸ The government paid nearly one-third of the cost of every loaf of bread, over half the cost of every gallon of milk, 40 percent of the cost of butter, and 70 percent of the cost of every kilogram of beef.⁵⁹

The state’s promises to consumers were only one side of the coin. Its promises to producers—the vast network of state enterprises, collective farms, and the military-industrial complex—were the other. Gorbachev drew the Politburo’s attention here. “For the last fifteen years, 25–30% of enterprises have not been meeting their income targets. And yet they continue to ‘work’ at the expense of the state.”⁶⁰ The Soviet state’s unwillingness to push unprofitable enterprises into bankruptcy and its guarantee of full employment meant few workers were ever fired. Enterprises “are going bankrupt,” Politburo member Vitalii Vorotnikov reiterated, “and the state is taking them on its back and keeping them afloat.”⁶¹

The Soviet state was now in fiscal and financial crisis, and Gorbachev sought refuge in radicalism. “There is no alternative to perestroika!” he would often tell his comrades, in words that echoed Margaret Thatcher.⁶² In the first half of 1987, he explicitly transformed perestroika into a campaign of “radical reform” for the economy. The reform rested on a cornerstone that was only vaguely hinted at because of its social, political, and ideological implications: breaking promises. By breaking the Soviet state’s promises to the country’s consumers, workers, and producers, Gorbachev hoped to incorporate capitalism’s stimuli into the socialist system. “The chief question in the theory and practice of socialism,” he declared to the country’s top leadership in June 1987, “is how, on a socialist basis, to create more powerful stimuli for economic, scientific, technical, and social progress than under capitalism.”⁶³

Perestroika’s leading economists framed the challenge in blunter terms. “There are a great many people who receive more than they give to society,” Abel Aganbegian said in 1987. “Under the conditions of perestroika . . . they are being called upon to ‘earn’ their keep.”⁶⁴ Another leading economist, Nikolai Shmelev, went even further. Soviet citizens’ “parasitic certitude about guaranteed work,” he wrote in spring 1987, was the source of all the nation’s ills. Perestroika needed to replace the “administrative coercion” of the state with the “economic coercion” of the market.⁶⁵ It was a prescription that echoed what Reagan and Thatcher were doing in the capitalist world, and a year later, Shmelev distilled his thinking in terms they would have heartily endorsed. “We must teach our people,” he wrote, “to understand that everything that is economically inefficient is immoral, as well as the reverse—that efficiency is morality.”⁶⁶

Moral efficiency was to be found, reformers hoped, in the centerpiece of Gorbachev’s economic reform, the 1987 Law on State Enterprises. The law mandated that beginning in 1988, all Soviet enterprises would become independent from the state. This independence would activate the “powerful stimuli” of market economies by allowing firms to keep their profits and forcing them to operate without state subsidy. In words any capitalist could appreciate, Prime Minster Ryzhkov told the Supreme Soviet that the “central idea” of the law was “to comprehensively satisfy the demands of the national economy . . . at the lowest possible cost.” Because enterprises would retain their profits, they would now have “an economic interest” in ensuring the “highest returns” and “maximum yield” on their capital.⁶⁷ Gorbachev addressed the issue of wages. “Each worker’s actual wages should be made closely dependent” on productivity and “should not be restricted by any limit.” Those were the carrots, but there were also hints of sticks. If an enterprise consistently failed to maintain solvency, “it would be possible to raise the question of reorganization or terminating the enterprise’s activity.” And as enterprises became more efficient, “the scale at which workers are being released will grow considerably.”⁶⁸ Private profit, corporate bankruptcy, wage inequality, and labor mobility were now on socialism’s horizon.

Gorbachev knew that breaking promises would garner resistance from many corners of society. Citizens would fear the loss of their jobs, income, and social security, and the sprawling state and party bureaucracy would fear the loss of subsidies and control over the Soviet economy. Both groups could defeat perestroika if they found a way to resist its economic prescriptions. Therefore, if he wanted to break promises, Gorbachev knew he would have to overcome the resistance of society and the state.

His weapons of choice were glasnost and democracy. At every step, Gorbachev paired his economic reform proposals with increasingly bold moves to democratize Soviet society. At first, this fell within the realm of increasing socialist democracy—expanding worker control over enterprises and holding competitive elections between Communist Party candidates at the local level—and allowing greater freedom of the press. But by 1988, with the economic crisis deepening and reform still not taking hold, Gorbachev jettisoned the confines of socialist democracy and embraced national competitive elections at the Nineteenth All-Union Party Conference.

He did so not only out of high-minded idealism but also out of cold political calculation. Indeed, the first reason democracy and freedom of expression emerged in the Soviet Union was because of their potential to coerce. Alexander Yakovlev, the driving force in the Politburo behind democratization, wrote to his colleagues, “There is sometimes a misunderstanding: when people talk about democracy, they presuppose some amorphous notion, like liberalization. . . . However, in reality, democracy is discipline . . . and the development of self-discipline.”⁶⁹ Gorbachev echoed his chief of ideology. “We have embarked on the path of democracy,” he told the Politburo in June 1987, because “it provides the strongest grip on power.”⁷⁰ At that point, he was only talking about democratization in enterprises and within the Communist Party. But in his memoirs, Gorbachev wrote that he applied much the same thinking to the decision to move to full electoral democracy. He recalled an article published in the Soviet press in 1989 that argued radical economic reform could only be implemented under “the reliable shield of strong authoritarian power.” He wrote, “For me and my circle this argument was no revelation. We were not so simple as not to recognize” that “significant transformations could be carried out” only with “a firm grip on the reins of power.” He knew he would need political power “to overcome the inevitable opposition to proposed reforms” from the state and party bureaucracy, and the most power was to be found in glasnost and democratic politics.⁷¹

This was the reasoning underlying his groundbreaking speech at the January 1987 Central Committee Plenum. There he announced a radical expansion of glasnost to include freedom of expression as well as elections within enterprises and between CPSU candidates at the local level. “We think that electiveness, far from undermining, on the contrary, enhances the authority of the leader,” he told the party leadership. The Soviet system had always been built on “control ‘from above,’” he said, but now it was “of fundamental importance” to increase “control ‘from below.’”⁷² If democracy made enterprise managers, local party bosses, and eventually the entire government and party leadership accountable to the population, public scrutiny would coerce these authorities into implementing economic reform.

On paper, then, the political and economic reforms of 1987 appeared well positioned to successfully impose the politics of breaking promises. Democracy would coerce Soviet enterprises into implementing the Law on State Enterprises, and the Law on State Enterprises would coerce Soviet enterprises and workers into being more productive. The economic discipline of the marketplace would chasten the Soviet social contract, and the economy would be relaunched on the long-sought path of intensive growth.

In reality, however, the reforms were an abject failure. In allowing enterprises to keep most of their profits, the Law on State Enterprises proved to be, in essence, a massive supply-side tax cut. Enterprises paid an average of 63 percent of their profits to the state in 1986, but that number dropped to 40 percent in 1989.⁷³ State revenues declined precipitously during the same period, falling from 47 percent of GDP in 1985 to 41 percent in 1989. This was, in turn, reflected in the budget deficit, which jumped from an already dangerous 6.2 percent of GDP in 1986 to 11 percent in 1988 and 9.5 percent in 1989.⁷⁴ Rather than imposing discipline on the Soviet economy, Gorbachev’s reforms replaced the soft budget constraints of the old command system with no budget constraints at all.

How did a reform that was meant to impose economic discipline end up removing it altogether? Why did Gorbachev’s attempt at breaking promises fail while his capitalist adversaries’ attempts succeeded? Interest groups, communist ideology, the politics of perestroika, and the inner workings of the Soviet financial system provide the answers. Each made it more difficult for Gorbachev to impose discipline, and collectively, they proved too much for him to overcome.

Throughout perestroika, Gorbachev faced a formidable ideological tension between advocating for market discipline and upholding socialist values. Unlike Thatcher and Reagan, who relished their roles as crusaders against socialism in all its forms, even the most radical Soviet reformers in 1987 and 1988 were not trying to destroy socialism, but rather reinvent it. Though they wanted to introduce many of capitalism’s coercive stimuli, they remained uneasy about the social effects and ideological implications of their drive for efficiency. Even as he praised Thatcher’s work in Great Britain, Aganbegian still believed that perestroika should accomplish its goals without causing unemployment in the Soviet Union. To do otherwise, he thought, would be to betray socialism’s founding promise to serve the working class. “As a country where power is in the hands of the workers,” he wrote, “it is natural that we should want to have no unemployment.”⁷⁵ This conviction carried all the way up to the Politburo. “Foreigners . . . are very interested in how we will deal with unemployment, which will inevitably follow in the course of perestroika,” Gorbachev told his comrades in 1987. “We know how they have solved that problem; how will we?”⁷⁶ Thatcher and other capitalist leaders who were “also carrying out a perestroika” in their own countries acted “harshly, rudely, the capitalist way, regardless of how it affects the workers,” he said. The Soviet perestroika needed to be different because it was based on “different ideas,” Gorbachev said, but “we can’t flinch either.”⁷⁷ How to not flinch while still retaining the “different ideas” of socialism was a riddle Gorbachev was never able to solve.

The politics of perestroika reinforced reformers’ ideological reluctance to follow through on their disciplinary policies. As long as Gorbachev needed the Soviet masses to exert control “from below” over the obstinate state and party bureaucracy, he could not afford to lose their approbation. This made carrying out unpopular reforms extremely difficult in political terms. Reforming the rigid system of fixed prices, for example, was an economically essential component of perestroika, but it proved to be politically impossible to carry out. “The question of prices is principle, fundamental,” Gorbachev told the Politburo in May 1987. “If it’s not solved, there won’t be . . . self-financing, and perestroika will not work.” But he could barely finish recognizing the economic necessity of prices before lamenting their political consequences. If the leadership announced a price reform, “commotion would erupt. And people will ask, ‘Why do we need all this?’”⁷⁸ Since advising Andropov to refrain from raising prices in the early 1980s, Gorbachev had known that price increases were the easiest way for a Soviet leader to lose support among the masses. The late 1980s were no different. “Hands off prices!” was the first rallying cry of the democratic opposition.⁷⁹

As a result of their ideological uneasiness and political trepidation, perestroika’s advocates forced themselves to believe that reforms could be socially painless. This was an ideologically consistent and politically wise position to hold, but economically, it was disastrous. Gorbachev told the Politburo that “the most important thing” about a potential price reform was that it “should not undermine the standard of living.”⁸⁰ The documents announcing the Law on State Enterprises contradictorily declared that “prices should be given a cost restricting character” but also that “the change of retail prices should not lead to a decline in the living standard of the working people.”⁸¹ Similarly, the party announced that the law would “induce the enterprises . . . to trim their excessive workforce” but would “not bring about unemployment.”⁸² The entire point of intensive growth was to produce more output with fewer inputs, including fewer workers, so considerable unemployment was a virtual certainty if discipline was actually imposed. It never was, and significant price liberalization and unemployment did not emerge until Boris Yeltsin came to power in newly independent Russia in 1992.

Gorbachev, of course, was not the only Cold War leader to unleash a massive supply-side tax cut and explode the budget deficit of his state. Ronald Reagan had done much the same thing in the United States. He too had failed, in many ways, to fully overcome his nation’s ideological and political resistance to economic discipline. But Reagan had been saved from the inflationary consequences of his policies by the draconian monetary policy of Paul Volcker. Gorbachev had no equivalent savior. In addition to communist ideology and the politics of perestroika, the Soviet financial system significantly contributed to the defeat of his drive to discipline. Unlike capitalist countries, where price stability became the policy priority of the 1980s, the Soviet government was not able to use monetary policy to control the nation’s money supply. Instead, by making enterprises’ assets convertible into cash, the reforms of 1987 unexpectedly removed the government’s control over the money supply and unleashed a tsunami of liquidity. KGB head Vladimir Kriuchkov described the problem in the spring of 1990. “The main culprit” in producing the country’s economic problems, he said, “is [the] conversion of very large amounts of what in the past had been non-liquid funds—columns of figures in accounting books—to cash. . . . So now we have hundreds of billions of rubles of ‘bad money’—money not backed up by goods—circulating in the system.”⁸³ Gorbachev’s economic reforms, therefore, not only gave Soviet enterprises a blank check, but also gave them the right to cash in all the old checks they had accumulated under the command economy.

The result was runaway inflationary pressure. Enterprise financial assets grew an astounding 32.6 percent in 1987 and another 22.5 percent in 1988,⁸⁴ while total enterprise spending ballooned from 243 billion rubles in 1987 to 462 billion rubles in 1989.⁸⁵ Annual income growth skyrocketed, jumping from 4 percent in 1987 to 13 percent in 1989.⁸⁶ The 1987 reforms had unleashed a runaway monetary train in the Soviet economy, one that soon imperiled perestroika’s popularity at home and crippled the Soviet state’s ability to project power abroad.

Gorbachev “always considered every significant action or initiative from two perspectives—domestic and foreign,” his aide Anatolii Cherniaev wrote in his memoirs. Therefore, as Gorbachev radicalized his domestic reform, “he simultaneously addressed the problem of restraining the arms race and the place of the military-industrial complex in [the] system—above all, its role in the country’s entire economy.”⁸⁷ Cuts to the military could only be made in an increasingly benign international environment, so Gorbachev went abroad in 1987 to foster the conditions that would make this possible. Through soaring idealistic rhetoric and bold personal diplomacy, he attempted to use new means to keep the international position the Soviet Union had formerly secured with military power.

It began with an internal campaign to reform Soviet defense doctrine. Reducing the size of the military-industrial complex could not be justified so long as the Soviet Union held to the principle that had grounded the country’s defense policy since the 1950s—maintaining strategic parity in armed forces with the United States. The Americans, Gorbachev said in May 1987, “clearly want to pull us into another round of the arms race. They are counting on our military exhaustion. . . . Therefore, the approach of one soldier there, one soldier here, they have a bullet we have a bullet, is not our approach.”⁸⁸ In place of strategic parity, Gorbachev now pushed the leadership to accept a doctrine of strategic sufficiency—the idea that the country did not need to match the United States in armaments, it merely needed to maintain armed forces sufficient to ensure that the Americans would be deterred from launching an attack.

Many in the Soviet armed forces were uncomfortable with such an approach, but a bizarre incident abetted Gorbachev’s initiative on May 27, 1987. West German teenager Mathias Rust flew a small airplane from Helsinki, Finland, and landed it on Red Square in Moscow without being turned back by the Soviet military. For Gorbachev, it was an opportunity to clean house within the national defense hierarchy. He forced Defense Minister Sokolov to resign and pushed hundreds of officers throughout the armed forces into retirement. His handpicked replacement to lead the Defense Ministry, Dmitri Yazov, now owed his job to the general secretary, and the Defense Ministry and the armed forces struggled to resist the transition to a policy of strategic sufficiency thereafter.⁸⁹

The move to strategic sufficiency paralleled an evolution in the Soviet position on nuclear arms control. After the close call at Reykjavik in October 1986, the leadership was in the familiar position of having to make further concessions if they wanted to make progress. Since his January 1986 declaration aiming for a nuclear-free world by the year 2000, Gorbachev had tried to attain a comprehensive agreement governing all nuclear weapons. That strategy had failed at Reykjavik due to the American unwillingness to give up SDI. By early 1987, a group of reformers and conservatives—Shevardnadze and Yakovlev as well as Ligachev and Sokolov—banded together to advocate decoupling negotiations over SDI and long-range strategic nuclear weapons from negotiations over intermediate-range nuclear forces (INF) in Europe. They also proposed to support the “zero option” in INF negotiations to remove all intermediate nuclear weapons from Europe.⁹⁰ These were significant concessions to the Reagan administration, which preferred to discuss strategic weapons and INF separately and had first proposed the “zero option” in 1981, thinking the Soviet Union would never accept it.

Far from leading the charge to decouple negotiations over strategic and intermediate weapons, as many historians have claimed, Gorbachev was at first reluctant to abandon his comprehensive approach.⁹¹ But with the domestic economy faltering and the Americans showing no sign of easing their negotiating position, he came to agree with other members of the Politburo that they needed to do something to jump-start the arms control negotiations. He soon issued a statement to the West proposing to eliminate all intermediate missiles in Europe without linking it to SDI or strategic weapons limitations. In an additional signal of flexibility, his letter railed against the future deployment of SDI but raised no objection to the prospect of researching and testing the program.⁹²

The Americans were happy to pocket the concessions and ask for more. US secretary of state George Schultz traveled to Moscow in April 1987 to negotiate with Gorbachev on the newly decoupled INF zero option. His visit came just one week before the Soviet finance minister would tell the Politburo that the country’s financial situation had “reached the point of crisis.”⁹³ Desperate to come to terms on a treaty that would enable cuts in the Soviet defense budget, Gorbachev agreed to three central American conditions for an INF treaty: including Soviet Asia in the agreement so the agreement applied globally, including short-range nuclear weapons in the agreement, and assenting to an intrusive inspections regime to verify the treaty. This led to agreement on the basic shape of the final treaty, and the two sides planned to have Reagan and Gorbachev sign it in December at a bilateral summit in Washington.⁹⁴

As he searched for an escape from the superpower nuclear confrontation, Gorbachev believed that Western Europe held the key to his strategy of securing the Soviet Union’s international position through diplomacy.⁹⁵ The Soviet leadership had long tried to drive a wedge between Western Europe and the United States through peace offensives, and with peace and disarmament movements gaining strength in Western Europe in the 1980s, the time looked ripe for success. But Western Europeans’ perceptions of the Soviet Union as a menacing threat would first have to be transformed into visions of the Soviet Union as a cornerstone of peace. There was a “war of ideas” going on between the superpowers for the hearts and minds of Western Europeans, Gorbachev told the Politburo in March 1987, and if the Soviet Union lost, it would “lose everything.”⁹⁶

He hoped his vision of a “common European home” would win this war. Gorbachev had first casually mentioned the idea in a speech to the British Parliament in 1984, but it took on new life as the “all-European house” during his trip to Czechoslovakia in April 1987. “We are resolutely against the division of the continent into military blocs facing each other,” he said in a speech in Prague.⁹⁷ In combination with the bold Soviet moves on arms control, this call to transcend the military division of Europe served its purpose of changing Western European perceptions of the Soviet Union. By the summer of 1987, Gorbachev’s popularity in the West had become a political force unto itself; by year’s end, Time magazine had named him their Man of the Year.

But the material realities of the Soviet empire remained unchanged. While he publicly proclaimed the need for a common European home in Prague, Gorbachev privately told the Czechoslovak leadership that “we will not conduct our perestroika at [your] expense. But do not expect to live at our expense either.”⁹⁸ As he reinforced to his Kremlin comrades later that year, the Soviet Union could not use “pressure [or] the slightest manifestation of inequality. . . . Each party must sort everything out itself.”⁹⁹ This included economic support, which Gorbachev once again told his allies the Soviet Union could not provide. “Jaruzelski is waiting for a lot of help in economic cooperation,” he reported after meeting with the bloc allies at celebrations of the seventieth anniversary of the October Revolution. “Zhivkov [in Bulgaria] too.”¹⁰⁰

The Soviet Union had nothing extra to give. On October 9, 1987, Ryzhkov reported to the Politburo a litany of economic dismay. From 1985 to 1987, the country’s annual hard currency earnings from exports dropped from $25 billion to $17 billion, even though the government had diverted increasing numbers of goods, including oil, from the domestic market to exports every year. Income from foreign trade had dropped from 66 billion rubles in 1985 to 52 billion rubles in 1987. The state budget deficit was now 84 billion rubles.¹⁰¹ These numbers not only prohibited support for allies in Eastern Europe, but they also reinforced the main goal of Soviet foreign policy—to reduce defense spending. Ryzhkov told the Politburo just one week before his bleak economic report, “If we hold the current level of spending on defense, we cannot upgrade industry, we will not give the people prosperity. . . . We must reduce defense spending.”¹⁰²

Lowering defense spending would require the completion of the INF Treaty. In fall 1987, the Soviet negotiating team made another significant concession to keep progress alive. They formally recognized that the Soviet Union had more short- and intermediate-range weapons in Europe than the United States and thus would have to give up more weapons than the Americans to get to zero. These “asymmetrical cuts” had long been a deal breaker for the Kremlin, but circumstances now demanded they give way. In October, Gorbachev made one final attempt to tie his attendance at the Washington summit to an American willingness to negotiate on SDI, but after Schultz stonewalled this demand, he dropped the linkage once and for all. Only a year after he had broken off the Reykjavik summit over SDI, he would now travel to the next summit without the program even on the negotiating agenda.¹⁰³

The signing of the INF Treaty in Washington on December 8 was a historic event and the crowning achievement to that point of Gorbachev’s strategy to secure the Soviet Union’s international position through diplomacy in place of military power. He publicly declared that the treaty demonstrated the importance of “the human factor” in building trust between adversaries.¹⁰⁴ Hours of personal diplomacy had contributed to the agreement, but the ultimate source of the treaty lay outside any negotiating room. The Soviet leadership had drawn a fundamental connection between cutting the country’s military burden and improving the domestic economy and had made a string of concessions in pursuit of that goal. In the final treaty, the Soviet Union agreed to eliminate 1,846 short- and intermediate-range missiles, while the United States only agreed to eliminate 846.¹⁰⁵ Gorbachev had to stomach these disparities to successfully embed the move to military retrenchment within a superpower treaty and transform the Soviet Union’s international reputation from menace to peacemaker.

One year later, on December 7, 1988, Gorbachev stood in front of the United Nations General Assembly to announce a bold new vision for peaceful world order. “Force and the threat of force can no longer be, and should not be, instruments of foreign policy,” he declared. “Freedom of choice is a universal principle to which there should be no exceptions.” The international system would continue to be defined by the “rivalry of various socioeconomic and political systems,” but the Soviet Union now wanted “to impart to this rivalry the quality of sensible competition in conditions of respect for freedom of choice and a balance of interests.” To that end, he announced, Moscow would unilaterally reduce the size of its armed forces by 500,000 people over the next two years, withdraw six tank divisions from the Eastern Bloc, and reduce its overall military presence in Eastern Europe by 50,000 soldiers and 5,000 tanks.¹⁰⁶

The speech was a sensation in the Western world. It was a hint—crystal clear in retrospect but only naively trusted at the time—that the Soviet Union no longer sought to control the political and economic destiny of the nations under its orbit. Redefining the long-standing antagonism between the capitalist and socialist worlds as a sensible competition based on respect for freedom of choice did not sound like the Cold War of old. Indeed, it sounded as though Gorbachev was declaring the Cold War’s end.

This was precisely Gorbachev’s intention. In planning the speech, he had professed a desire to make his address the “anti-Fulton”—reversing Winston Churchill’s claim in a 1946 speech in Fulton, Missouri, that an Iron Curtain had befallen the European continent and divided it into two halves. The speech was the apotheosis of Gorbachev’s strategy to use bold vision and idealistic rhetoric to maintain the international standing the Soviet Union had once secured through military might.

Over the course of 1988, the conviction to reduce the burdens of empire had grown to encompass Politburo members on both sides of the growing debate over the domestic course of perestroika. In June, as the party prepared for the Nineteenth All-Union Party Conference, even conservative stalwart Andrei Gromyko had come to view exiting the arms race as a national necessity. The decision throughout the postwar period to produce ever more nuclear weapons “was our mistaken position, absolutely mistaken,” he concluded. “Tens of billions were spent on production of these toys.” His fellow conservative Vitaly Vorotnikov concurred. “We did indeed let ourselves get pulled into the arms race. We found ourselves on the brink of catastrophe. . . . We are the ones to blame.” Gorbachev capitalized on the prevailing sentiment to press his new thinking. Was the party’s goal “to race the entire world regarding the levels of armaments: cannon by cannon, plane by plane?” he asked. “Then let us introduce ration cards for food, turn the country into a military camp, and just race and race onwards.” With shortages already crippling the Soviet economy, this was a prospect no one welcomed.¹⁰⁷

As the year progressed, the trade-off between the domestic economy and the military burden became ingrained in the Politburo’s thinking. It thus directly informed Gorbachev’s internal preparation for his UN speech. He believed in a radically new and nonviolent vision of international relations, which he hoped to demonstrate to the world by pulling Soviet troops out of Eastern Europe. But that vision is not what sold his less idealistic comrades in the Politburo on the idea. To them, the worsening domestic economy compelled military disarmament. At the Politburo meeting on November 3, 1988, Gorbachev reasoned, “Our military expenses are 2.5 times larger than those of the United States. No country in the world . . . spends more per capita on the military sector.” As the budget deficit spiraled out of control and citizens struggled to find food and basic consumer goods, this fact hung weightily over the chamber. If troops were not pulled out of Eastern Europe, Ryzhkov warned, “we can forget about any increase in the standard of living. No matter what government you put in place of this one, it won’t solve this problem.” Sensing consensus, Gorbachev proposed that he announce unilateral cuts in the armed forces in his UN speech. Everyone agreed, and he concluded, “The main reason we’re doing this is perestroika. . . . Without reductions in the army and the military industrial complex we won’t be able to deal with perestroika’s tasks.”¹⁰⁸

Upon returning from the United Nations a month later, Gorbachev held another Politburo meeting to assess the speech and the future direction of perestroika. Yegor Ligachev, his preeminent conservative opponent, praised the policy of unilateral disarmament on the grounds of political economy. “We need disarmament most of all,” he said. “We took such a burden upon ourselves with relation to the military budget that it will be difficult to dramatically solve anything in the economy.” In the spirit of glasnost, many Politburo members advocated telling the world that the domestic economy had necessitated the military cutbacks. But Gorbachev demurred. “We keep this secrecy for one reason,” he said. “If we admit now that we cannot build a long-term economic and social policy without [unilateral cuts], . . . this may reduce to nothing [the effect] of the speech at the United Nations.” Gorbachev knew that the idealism of the speech would lose its power if it became clear that it was driven by material considerations.¹⁰⁹ For now, people in both East and West were calling the speech’s idealism revolutionary. If the Soviet Union was going to maintain its superpower status in an era of retrenchment, Gorbachev knew that he and the country could not afford to lose those acclamations.

Nor could they lose the regard of their allies in Eastern Europe. Since scolding the allies for “living on credit” and lamenting the scale of Soviet oil deliveries in November 1986, Gorbachev had continuously returned to the questions of oil and indebtedness in discussions of the region. In a March 1988 Politburo meeting, he brought up former Polish leader Edward Gierek, who had tried to spur development in the 1970s by borrowing from the West. “What was it all based on?” Gorbachev said. “On credits from the West and on our cheap fuel. The same goes for Hungary.” Going forward, economic relations in the bloc needed to change, Gorbachev said, “because we cannot remain a provider of cheap resources for them forever.”¹¹⁰

By the fall of 1988, it had become apparent that a general economic crisis of the socialist bloc was fast approaching.¹¹¹ Georgii Shakhnazarov, Gorbachev’s aide for Eastern Europe, wrote his boss an urgent memo detailing the onrushing problems. “There are multiple signs that certain similar problems are increasingly plaguing fraternal countries,” he wrote in early October. In the past, “whenever any of them was in crisis, we had to come to the rescue at the cost of huge material, political and even human sacrifice.” But now, “any option to ‘extinguish’ crises by military means must be fully excluded. Even the old leadership seems to have already realized this, at least with regard to Poland.” The current crises were, in any case, financial. “We must reflect on how we will act if one or even several countries become bankrupt simultaneously,” Shakhnazarov wrote. “This is a realistic prospect for some of them on the brink of monetary insolvency.” The prospect of bankruptcy raised a number of questions the leadership needed to address. “Could the socialist countries come out of the pre-crisis situation without Western assistance? What price will they have to pay for this assistance? To what extent should we encourage such a course of events or put up with it? To what degree are we interested in the continued presence of Soviet troops on the territory of a number of allied countries (excluding the GDR)?”¹¹²

Gorbachev’s UN announcement of troop withdrawals from Eastern Europe began to answer this last question. Answers to the others would emerge in early 1989. In January, Gorbachev told the Politburo, “Comrades, we are on the eve of very serious things, because we cannot give [the Eastern Europeans] more than we are giving them now.” He heard no resistance from his colleagues to the idea that the country had reached its material limits. But if the Soviet Union did not provide more economic and technological support, Gorbachev said, “there will be a split and they will run away.” As populations and politicians across the Eastern Bloc wondered how far they could push Moscow without inviting a harsh crackdown, Gorbachev now told his colleagues, “The peoples of those countries will ask: what about the CPSU, what kind of leash will it use to hold our countries back? They simply do not know that if they pull this leash harder, it will break.” In place of the old policy of domination through economic subsidy, Gorbachev declared it was time to transfer relations with Eastern Europe “to the market.” In doing so, he knew the Kremlin “would break the old rule that we keep them attached to us only by means of energy resources.”¹¹³ To fully explore the burgeoning crisis in the bloc, Gorbachev commissioned a series of reports from the leading foreign policy institutions of the Soviet state.

The report from the Central Committee was quick to frame the looming crisis in Eastern Europe in economic terms. The Eastern Bloc governments suffered “from a lack of legitimacy,” the authors wrote, and “the economic factor, the ability of a country to join and to assimilate into the world economy, has moved to the top of their priorities.” Because the ruling parties lacked legitimacy, they could not “rule in the old way anymore” and were instead attempting a “smooth movement toward democratization . . . under the leadership of the ruling parties.” How should the Soviet Union seek to influence socialist countries under these precarious conditions? “Authoritarian methods and direct pressure have clearly outlived their usefulness,” noted the report. Even if there was “a sharp deterioration in one of the countries . . . it is very unlikely that we would be able to employ the methods of 1956 and 1968, both as a matter of principle and because of unacceptable consequences.”¹¹⁴

The report of the Institute of the Economy of the World Socialist System, written by its director, Oleg Bogomolov, paralleled the Central Committee’s analysis. Bogomolov plainly stated that the Soviet government faced “a dilemma”: either “thwart the evolution” toward market socialist economies and representative government in Eastern Europe “or take it in stride and develop the policy accepting the probability and even inevitability of this process.” The academician’s answer to this dilemma could not have been clearer. “Attempts to thwart emerging trends . . . would mean wasting means and resources for an obviously hopeless cause.” Fighting to preserve the status quo would “weigh as an excessive burden on our economy.” If, instead, the Soviet Union permitted its Eastern Bloc allies to reform, “the economic burden of the USSR [would] be alleviated.” In conclusion, Bogomolov warned that countries where the Soviet Union intervened would “inevitably acquire . . . quasi-dictatorial regimes which would continuously deplete the material resources of the Soviet Union.”¹¹⁵

For Gorbachev, these reports solidified convictions that had long been hardening. On March 3, 1989, he told the Soviet ambassadors to the Eastern Bloc states, “Do not impose anything on anybody! . . . We reject force in everything, in all our policies.” Echoing the “main line” laid down by his mentor Andropov almost a decade before, Gorbachev told the group that the leadership would now “think of our own people” instead of assuming “full responsibility” for the fate of the satellite governments in Eastern Europe.¹¹⁶ Later that month, a group of senior officials led by Shevardnadze and Yazov confirmed that the Kremlin bore no legal responsibility under the Warsaw Pact to defend its allies from internal instability or revolution.¹¹⁷

In July, Gorbachev eloquently couched the new Soviet national interest within a stirring internationalist call for a common European home in a speech to the Council of Europe in Strasbourg, France. “The social and political order in some particular countries did change in the past,” he said, “and it can change in the future as well. But this is exclusively a matter for the peoples themselves and of their choice. Any interference in internal affairs, any attempts to limit the sovereignty of states—whether of friends and allies or anybody else—are inadmissible.”¹¹⁸ After being repealed in practice in 1981 and among the socialist allies in 1986, the Brezhnev Doctrine was now revoked for all the world to see.

In the chapters to come, we will see that the political transformation of Eastern Europe in the late 1980s was the result of a transnational struggle among Western banks and governments, Eastern European governments, and Eastern European peoples over who would bear the costs of economic adjustment policies. In this struggle, the Soviet leadership held power only to the extent that it was willing to provide economic assistance to its allies or intervene militarily, which would have had its own significant economic costs. Continuing the foreign policy first set by Andropov in the Polish Crisis, Gorbachev and his Politburo colleagues were unwilling to embrace either option. Motivated to shed the burdens of an empire bequeathed to them by history, they watched idly as a wave of economic adjustment, masked as political revolution, washed over the nations they once called satellites. Contrary to the historical memory that prevails today, this wave had not originated in the socialist world with perestroika but rather in the world economy with the oil crisis of 1973 and the sovereign debt that followed from it. By the mid-1980s, it had already washed over much of the capitalist world and was cresting above the concrete walls and iron curtains that separated East from West. Soon it would wash away the division of Europe completely.