IN THE late 1980s, Mikhail Gorbachev tried valiantly to revamp the Soviet economy. He had come to realise that his state had fallen far behind the West. But as Robert Service shows in his book "The End of the Cold War: 1985-1991", even Gorbachev struggled to understand quite how badly the economy was doing. Service has had access to records of Politburo meetings. From those it is clear that official figures on defence spending as a proportion of GDP were massively understated. Statistics were generally unreliable. At one point, arms negotiators trying to do a deal with Ronald Reagan were embarrassed to find they did not have an exact figure for the number of nuclear missiles they controlled.
This problem is endemic to command-and-control economies. Governments set targets from the top; bureaucrats and party functionaries know that their jobs (and sometimes their lives) depend on meeting them so the figures are massaged to meet the target. And often the wrong targets are set. By the late 1980s, most western economies had switched away from a manufacturing-led economy to a services-based one; the Soviet Union was still obsessed with...Continue reading
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