Media pressure drove what Ligachev called the “fateful error”434 of December 1987—the drastic reduction of the state purchase of industrial output, a mad leap from a planned to an unplanned economy. Against the better judgment of Prime Minister Ryzhkov and Ligachev, Yakovlev and Gorbachev pushed to shrink the state orders—the guaranteed government purchase of Soviet industrial output at fixed prices—from 100 percent to a mere 50 percent of the whole of industry. Reducing state orders to such a degree meant that, in one leap, half of Soviet industry would gain autonomy to buy and sell its output in a new wholesale market-–trade between enterprises—with prices set by fluctuations in supply and demand. Ligachev and Ryzhkov argued for a cautious experimental plan in which the state would purchase 90 percent of industrial output, leaving only 10 percent of industry to face the uncertainties of supply and demand. The Ligachev-Ryzhkov plan would have gently pushed enterprises to experiment with autonomy and free prices. The Gorbachev plan proved utterly reckless. It plunged the economy into chaos. In 1988, consumer shortages proliferated and, for the first time since World War II, inflation appeared.
The removal of the Party from economic management undermined the economy.435 The sectoral ministries in Moscow were powerful tools of central planning. Through their large central offices in Moscow, the ministries linked enterprises to the highest planning bodies and the CC Secretariat of the CPSU. They oversaw the performance of enterprises, enforced plan discipline and maintained regional and sectoral industry links and balances. Perestroika reduced the ministries’ powers again and again. In 1986, in 1987, and in 1988 these reductions destroyed the main coordinating mechanisms of the planned economy. The dismantling did not take the form of slashing the staff of the ministries. Rather, perestroika redefined the ministries’ relationship to enterprises. New directions forbade the ministries from issuing commands and gave them the new role of developing “enterprise autonomy.”436 Rendering the ministries powerless was foolish enough, but the way that Gorbachev and his advisers implemented this policy achieved the maximum loss of public confidence. According to Ellman and Kontorovich, Gorbachev’s team was “constantly discrediting itself and its policy by repeatedly making erroneous and halfhearted decisions, then quickly reversing and publicly condemning them.”437
The major blow to the planned economy occurred at the Nineteenth Party Conference, which abandoned gradualism and issued a directive compelling the separation of the Party, the Soviet organs, and economic management. This directive played the major role in the Party’s withdrawal from the economy, both on an organizational level and ideological level. New blows rained down on the planning system shortly after the Nineteenth Party Conference. In the fall of 1988 Gorbachev abolished 1,064 departments and 465 sectors in the Central Committees of Union Republics and regional and district Party committees. He slashed the number of departments by 44 percent. Ideologically, the Party’s withdrawal from economic management undermined the willingness of leaders of state economic entities to obey directives from a single center in Moscow. Centrifugal forces began to gain the upper hand in the economy.
Gorbachev also tried to harness the second economy. A U.S. academic, S. Frederick Starr, noted that this decision represented a basic change in course. In effect Gorbachev rolled out a welcome mat for nascent capitalist forces in Soviet “civil society.” “Gorbachev faced a momentous choice,” Starr asserted. Either he could have improved the economy through tightened “controls” and better planning, or he could have sought to win to his side “the new economic and social forces that had brought themselves to life through autonomous action and intellectual contact with Russia’s long suppressed tradition of liberal reform.” He rejected the first and chose the second. He tried “to co-opt the second economy (and tax its profits) with his new law allowing private—nominally co-operative—businesses.” He blessed the voluntary associations (“the informals”) by claiming they had a legitimate place in Soviet society. “Gorbachev’s genius,” Starr declared, “is not to have created the elements of perestroika but to have taken them from the society around him.”438 British analyst Anne White confirmed Starr’s opinion. The “informals” denoted “any kind of activity not directly organized by the Party.” Many were non-political cultural entities, especially among the young, and many dated back to the Khrushchev Thaw. The oft-cited number, 30,000 informals in existence by February 1988, included both pressure groups and non-pressure groups, and over time, especially in the perestroika era, the former became ever more significant.439
Thus, the laws on Co-operatives and the law on Leases passed in 1988 contributed to the rapid expansion of the capitalist elements in the USSR. While slyly quoting Lenin —out of context—on the acceptability of co-operatives under socialism as a form of socialist property,440 the law actually allowed private property in the guise of a co-op. Soon the remaining state enterprises developed economic relationships with privately owned co-ops, which were less regulated and less taxed than the state sector. The leasing of industrial property to co-ops became a way of privatizing assets while maintaining the fiction of public ownership.
The restoration of capitalism and the triumph of separatism were distinct processes. The USSR could have fractured with the pieces remaining socialist. The USSR could have restored capitalism without breaking up. In actuality, the two occurred together, and shared a similar lineage. The pro-market and pro-private enterprise trend also had a dubious analysis of nationalism, Russian and non-Russian. The differences between this trend and Lenin were fundamental, systematic and long-standing.441 Lenin and those who followed in his footsteps saw the two sides of nationalism, progressive and reactionary. More importantly, from 1917 to 1991, they stressed the need to struggle with nationalism, if possible, to replace nationalism with internationalism, or at least to strengthen nationalism’s democratic and progressive manifestations and to weaken its reactionary side. Those in the Party who leaned the most in the direction of blind markets, private enterprise, and liberalism, also consistently failed to come to grips with nationalism.
Nationalism had a special hold on the peasantry, and on the vast sections of the Soviet working class within a generation of the countryside. Even after collectivization, the attitudes of country folk toward land, property ownership, and the homeland made them susceptible to nationalist rhetoric. By and large, urban workers uprooted from the countryside long ago were more class-conscious. They found nationalism less attractive. Nationalism also had a hold on a section of the literary intelligentsia that identified with the Soviet peasantry and pre-1917 Russian history.
The Party trend with which Gorbachev identified had as its social base the large social classes and class fragments most inclined to nationalism: the peasantry, and sections of the working class with social ties to the countryside. Accordingly, this CPSU trend did not struggle with nationalism, ideologically and politically. It accommodated, ignored, or underestimated nationalism, Russian and non-Russian. It also overestimated the USSR’s progress in the struggle against national inequality. Its premature claims of success influenced many, though by no means all, observers of Soviet life.442