In 1989-91, over most of the country, embryonic Soviet capitalism was growing by leaps and bounds. The new co-ops permitted by law were private businesses. Top Soviet government ministers, including Prime Minister Nikolai Ryzhkov, ordered the formation of some co-ops. Roy Medvedev wrote that private businessmen as well as government enterprises and organizations formed “tens of thousands of co-ops” — in trade, production, and construction. The co-operatives made it possible to “transform billions of rubles worth of non-liquid assets into cash.” The ending of the previous government monopoly on foreign trade made it possible “to swing commercial deals on large scale through the co-operatives.”541
Later, the new Russian business oligarchs claimed it had been easier to make a fortune under Gorbachev than Yeltsin. Gorbachev’s economic officials turned the Communist youth organization Komsomol, 15 million strong, into a training ground for young entrepreneurs. Using Komsomol resources, youthful Soviet capitalists set up the country’s first commercial banks and stock exchanges. Komsomol’s aspiring millionaires also profited from such ventures as show business, video rentals, tourism, gambling, and international trade.542
Emerging into daylight with Gorbachev’s blessing, the shadow economy contained a huge criminal component. According to Stephen Handelman, an authority on Russian organized crime, in the Gorbachev era, “60 percent of the co-operatives were run by former or active criminals.”543 By late 1991, after the legalization of much private enterprise, the black market still accounted for “15 percent of the Russian volume of goods and services.”544
The more the CPSU and the plan died, the more the market became inevitable. In 1987, the decision to go for radical political reform entailed the assumption that the “command-administrative system”—the Party and the central government—was the chief problem. Such an assumption pushed the revisionists and their economists inescapably to the idea of an economy solely dependent on spontaneous market mechanisms, private ownership, and profits. With central ministries in Moscow unraveling and with a diminished Party to guide a transition, market advocates showed an interest in “shock therapy,” a free market regime imposed, from above, all at once, with few or no safeguards.
Even Nikolai Ryzhkov, the prime minister and chief USSR economic official, opposed the blind leap to free market capitalism. Ryzhkov wrote that, unlike the Chinese reformers, Gorbachev was weakening the Party and the state when they would be most needed:
At first, I thought that Gorbachev simply did not understand the essence of the question, but further conversations and particularly Politburo sessions in which these problems were discussed showed he was consciously pursuing his line. The ultra-radicals demanded that the idea of the plan be totally rejected, asserting that the producers themselves would quickly understand everything and establish smooth, mutually profitable relations between each other, and nationwide tasks would be solved by themselves. Yakovlev, Medvedev and Shevardnadze insisted on this point of view, and Gorbachev supported them.545
Other factors hastened the turn to the market. Gorbachev’s change of his political base from the Party to state institutions and his accession to the presidency in March 1990 gave him greater freedom of action. The July 1989 coal miners’ strike, both reflecting and causing economic decline, panicked many leaders in Moscow, and made the unthinkable thinkable.
Ideologically, the distorted glorification of NEP prepared public opinion for the new pro-capitalist direction. Gorbachev sympathizers Anthony Jones and William Moskoff illustrated the revisionist use of NEP to make a case against central planning. They asserted that there are “parallels”—in reverse—to the industrialization debate between Bukharin and the CPSU majority led by Stalin in the USSR sixty years earlier. Then, the Soviets chose the plan, not the market, as the best way to catch up with the capitalist nations of the West. “But the contemporary debate has focused on whether, how, and at what speed the nation might find its way back to a market system.”546
Not least of all, international pressure kept up. U.S. Secretary of State James Baker came to Moscow offering advice on price reform. The West began dangling loans.547 There were accelerated contacts between Western and Soviet economists, joint conferences touting free market nostrums, seminars in Moscow featuring free market economists, and lucrative U.S. speaking tours for select Soviet economists. Through most of 1989, U.S. billionaire George Soros, whose wealth came from currency speculation, had a secret advisory team in Moscow with access to the highest circles, where they advocated the creation of an Open Sector, a kind of beachhead for capitalism until a full, countrywide restoration of capitalism occurred.
In 1990-91, Gorbachev found it difficult to steer a transition to a market economy because, with his own popularity slumping, he feared that shock therapy would make his opponents more popular. A circus parade of marketization proposals dominated the last two years of the Gorbachev era. This further discredited Gorbachev.548 The Russian republican government under Yeltsin was moving faster than the USSR government toward “shock therapy,” and its proposals pushed the more reluctant USSR authorities. In November 1989, Ryzhkov’s economist, Leonid Abalkin, put forth a six-year plan involving privatization and price increases. In mid-February 1990, Abalkin and the head of Gosplan put forward a revised plan, to take effect in mid-1990 or January 1991, involving rapid steps to a market economy. Ryzhkov and the government officials and economists working for him resisted the Russian Republic’s ideas for a lightning transition to a market economy. While Ryzhkov insisted on caution, Boris Yeltsin’s power was on the rise. In July 1990, Gorbachev decided to dump Ryzhkov and make a deal on the economy with Yeltsin, recently elected head of the RSFSR Supreme Soviet. Together, Gorbachev and Yeltsin picked Stanislav Shatalin to prepare an “agreed upon conception of a program of transition to a market economy as a basis of the economic section of the Union Treaty.”549
Shatalin’s Five Hundred Day Plan was intimately bound up with the struggle between Gorbachev and Yeltsin over the Union Treaty. Calling for total privatization and monetary stabilization in the first one hundred days, the plan was a “laughable” departure from economic realism.550 The plan involved major price increases for necessities. Crucially, the Five Hundred Day Plan gave all taxing powers to the republics, which would then decide how much to give back to the USSR and asserted the priority of republican laws over Soviet laws. The advocates of the Shatalin plan clearly wanted to abolish the USSR. Gorbachev rejected Shatalin’s scheme. In November 1990, Gorbachev assigned his old adviser, Abel Aganbegyan, to work with Shatalin, Abalkin, and Petrakov, on another economic plan. This was vintage Gorbachev positioning himself as a centrist. The resulting presidential plan, like the Ryzhkov-Abalkin plan, involved price increases. Yeltsin’s Russian Republic passed a law blocking price increases. That action put the demagogy of Yeltsin clearly on exhibit. He was willing to destroy the Soviet Union in order to race toward capitalism, but he would also damage Gorbachev by denouncing his acceptance of price increases, which were inevitable with the free market, of which Yeltsin was the staunchest advocate. This was trying to have one’s cake and eat it too. By 1990, if not before, Yeltsin and his closest advisers understood that their drive to a full free-market economy meant the breakup of the Union state. Such an understanding was implicit in the Shatalin Five Hundred Day Plan. To restore capitalism in Russia, the USSR and Gorbachev had to go. Gorbachev’s advisers also understood that point. When he rejected the Five Hundred Day plan, Gorbachev rejected a strong pro-capitalist orientation and the dissolution of the USSR, which would have meant the disappearance of his own position and power. His inner circle, however, Yakovlev, Shevardnadze, Medvedev, Shakhnazarov, and Chernyaev supported the Five Hundred Day Plan. Gorbachev then turned to opponents of the market to fill such key positions as minister for justice, director of TASS, and minister and first deputy minister of internal affairs. As a consequence, Yakovlev deserted Gorbachev. Soon after, Foreign Minister Shevardnadze resigned. In 1992 he returned to Georgia to lead his native republic. 551