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One thing which is also downplayed is oil. Soviet Union production peaked in 1986, and started declining therafter - just at a time when oil prices crashed.

That hurt their trade balance violently, and led to massive borrowing (from Germany, mostly), which was coming to an end by 1991. Quite simply, Gorbatchev's Soviet Union was broke, and while it is unknown whether it would have been kept in one piece, it is certain that it was going for hyperinflation and social disaster in 1991.

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Thu Jan 11th, 2007 at 03:19:25 PM EST
Did Soviet production really peak, or was it more the case that Soviet investment (in exploration, and in distribution) was horribly lagging and by the late '80's, exacerbated by relatively low commodity prices, oil revenues began to really suffer?

That 2nd cold war imposed on Russia, following the long entente period, was very costly to the Soviet Union, impacting investment in everything else.

The Hun is always either at your throat or at your feet. Winston Churchill

by r------ on Thu Jan 11th, 2007 at 04:00:56 PM EST
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Oh no, it really did peak. The Soviet Union is the second most explored and most exploited oil "province" (there were several, of course, in such a big country)  in the world, after the USA, and it is also that whose biggest share of available oil has already been produced.

In the long run, we're all dead. John Maynard Keynes
by Jerome a Paris (etg@eurotrib.com) on Thu Jan 11th, 2007 at 04:25:05 PM EST
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The Soviet Union's inability to enter the information age (and thus the modern world economy) left them too dependent on commodity exports for revenue. Manuel Castells did a good analysis of why they failed to do so in this book. A drop in oil revenues could have served as a simple trigger for this deeper problem.

you are the media you consume.

by MillMan (millguy at gmail) on Thu Jan 11th, 2007 at 04:58:08 PM EST
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On the financial (union budget) side, several other factors are often quoted.

First, the anti-alcohol campaign of 1986-87. Contrary to a popular belief, it did save a lot of lives: see this mortality graph . However, it dramatically undermined union budget where share of receipts from alcohol trade was in double digits.

Another factor was a movement towards self-governance and workplace democracy that took place in 87-88, combined with lightly regulated cooperative movement. This lead to workers' councils voting for huge wage increases, and managers moving the most profitable assets (or the assets producing the most demanded goods) into cooperatives that used enterprise's energy, management, premises, spare parts at regulated prices, etc., but paid very little back in taxes (this is how future bankers and oligarchs started). The result was much lower profits that could be collected by the union budget.

So, the budget collapsed. When Eltsin started an economic war between Soviet Union and Russia - by promising formerly union-governed enterprises Russian jurisdiction with lower taxes, he was gaining some revenue (but Russian budget expenditures weren't that huge). Union budget was losing a lot, and Gorbachev was in no position to offer a sweeter deal in this race to the bottom.

So, there's a lot to be said on the economic side, and it's mostly internal and has nothing to do with Star Wars  which are often presumed to have bankrupted the Soviet Union.

One could also argue that it was Russia that have undermined USSR (the evil empire) from within. Well-deservedly, traitors don't get laurels for their deeds :-).

by Sargon on Fri Jan 12th, 2007 at 06:37:11 AM EST
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