What caused the end of the Cold War?

[Tatar Khan]

In terms of arms race if SDI system became active US would have had an upper hand because that system would have been as good as any ABM system. Thus ensuring that US can destroy USSR but not wise versa. That was the biggest scare. Also US was outdoing in technological innovation USSR which meant that in conventional warfare through proxies they would be winning everytime.

As for Stalin removing the real ideological communists well, with exception of Lenin and maybe Trostsky I don't think there were any real idealists in the party except in lower ranks. It it is the law of nature that as you get higher in positions you stop entertaining ideal and dreams.

The economy was not working out, this was true and not only due to lack of consumer goods. The fact that there was no real financial system or credit system made sure that economy grew slower, than the market based economies as the sale of product and therefore growth and development is increased through credit. Because not only the firms can borrow but also consumers can borrow to get the cars and apartments for which otherwise they would have to be saving for their who life.

Lack of proper quality consumer goods was due to working of the system from the top down rather than from down up. So consumers had to purchase the product that was not fully meeting their demand due to lack of other product out there and since market signals are not transmitted in Soviet economy the consumers goods lacked in quality. There was no real incentive to innovate. There were incentives but they were not strong enough. The only real innovation was in military, space, aircraft (civil), shipbuilding (civil), nuclear technologies because there was real competition with the West which forced innovation and invention.

I guess it easy to say that Soviet System was too rigid and inflexible and usually such systems have problems standing up over time to different stresses put on it.

As for nationalism that was not that much of a problem, it became more of a problem after break up as people started to look for their own identity and tried to push the burden of responsibility for their own mistakes on somebody else (natural reaction). Mostly only Baltic States and the very western Ukraine were nationalistic and wanted to separate as they were more or less added forcibly to Soviet Union.

[Edric O]

Just a quick point before I go to sleep:

The only real innovation was in military, space, aircraft (civil), shipbuilding (civil), nuclear technologies because there was real competition with the West which forced innovation and invention.

Sorry, but the competition with the West in those fields could not and did not provide any material incentives, because it was a competition for prestige, not money. Soviet workers and managers did not compete with the West in any kind of market, and they did not get more money for building things better than their Western counterparts. Therefore you cannot argue that Soviet innovation and invention was due to competition.

[Tatar Khan]

Military hardware was I think the second biggest export of Soviet Union to third world countries. And of course the scientists and engineers got better money and other priviliges for being part of such projects.

Prestige was there but the monetary factor was there too.

[Caid Ivik]

Just a quick point before I go to sleep:

Sorry, but the competition with the West in those fields could not and did not provide any material incentives, because it was a competition for prestige, not money. Soviet workers and managers did not compete with the West in any kind of market, and they did not get more money for building things better than their Western counterparts. Therefore you cannot argue that Soviet innovation and invention was due to competition.

Actually military research was one of the few fields, where they allowed competition. But I agree on Gorbacov  ;D

[Sneakgab]

''Military hardware was I think the second biggest export of Soviet Union to third world countries''. Surely this was only AFTER the dissolving of the Soviet Union. Can't really have much of an arms race if you keep on selling you're arms right? Unless the logic was to use the profit to build even more arms or something. Seems unlikely. Also, this export was done by the government of the Soviet Union so unless you can a government a competitive trader like a company where it's CEO's and high ranking employees get paid more for more trade then I don't see how you can say that the scientists and workers of the soviet union were motivated by market trade since more sales did not mean more profit for them because this money would be used on the Union or grabbed by their corrupt leaders. Therefore there could not have been much monetary incentive. 

''And of course the scientists and engineers got better money and other priviliges for being part of such projects.'' Well maybe for being part of such projects, but I don't think there was much difference in pay once they were already working. Clearly the monetary incentive was reduced relative to America and most of the world, and yet the product was definetly comparable and the work/effort was there.

It seems to me this does much to dispel the myth that money is the only motivating factor in existence, and that quality can only be had through competition for said money.

(edit)

In all honesty, I don't really know anything about the policies of the Soviet Union on these things (whether they gave increased pay or what not) so I can't really say anything I guess.

[Tatar Khan]

Money is not the motivator it is the happiness however wealth is often used to achieve happiness.

Military hardware is always sold by makers of it. You downgrade it so that the one going to export is not going to stand up against the one used domestically but you sell. USSR had special names for the airplanes that were variations of MIGs and SUs that were sold to India, China, North Korea, Egypt, Iran, Iraq, etc. And if due to your invention or innovation the hardware now have more countries desiring it than you would be rewarded. That was same in US and USSR. The more countries use your hardware the more prestige your country got as that means its people can make a better product. And it has to be a better product if you want to sell to non-aligned nations.

[Edric O]

In terms of arms race if SDI system became active US would have had an upper hand because that system would have been as good as any ABM system. Thus ensuring that US can destroy USSR but not wise versa. That was the biggest scare.

Right, but that fear never materialized, since the SDI system was never implemented. And besides, the proper response would have been for the Soviets to try developing an anti-ballistic missile system of their own, rather than trying to outgun the US.

Also US was outdoing in technological innovation USSR which meant that in conventional warfare through proxies they would be winning everytime.

They were still more or less evenly matched in the 1980s, even though the US succeeded in getting a slight upper hand. The Soviets were defeated in Afghanistan primarily because of the terrain and only secondly because of American weapons being sold to the mujahedin.

As for Stalin removing the real ideological communists well, with exception of Lenin and maybe Trostsky I don't think there were any real idealists in the party except in lower ranks. It it is the law of nature that as you get higher in positions you stop entertaining ideal and dreams.

That's true. You can rely on idealists to make a revolution, but you can't expect to govern a country with them after the revolution. Power corrupts, and idealists quickly lose their idealism after a few years in power. That's why democracy is necessary, so that the people have power over the government and can keep it on the right track after the idealism wears off.

To save the Soviet Union, it would not have been enough to overthrow Stalin and replace him with a more committed and idealistic communist. That wouldn't have solved anything - a dictatorship always becomes highly corrupt, no matter how good or pure are the intentions of some of the people in charge. The only solution would have been to give the Soviet people real power and remove dictatorial controls altogether.

The economy was not working out, this was true and not only due to lack of consumer goods. The fact that there was no real financial system or credit system made sure that economy grew slower, than the market based economies as the sale of product and therefore growth and development is increased through credit.

Um, actually, the Soviet economy grew faster, on average, than the US economy over the period of time from 1929 to 1980. The problem was that the US had such a massive head start and the Soviet economy wasn't growing fast enough to catch up any time soon (it would have taken them several more decades at 1970s growth rates, but then the economic crisis hit in the 80s and those hopes were dashed).

I'm not sure if the lack of a credit system made a difference; credit can help drive an economy based on markets and the flow of money, but the Soviet Union had a planned economy, so money wasn't really an issue. Investment was done exclusively by the state, and the state already had all the nation's means of production at its disposal - it could determine the level of investment at will and would not have needed to borrow money in order to increase that level.

Because not only the firms can borrow but also consumers can borrow to get the cars and apartments for which otherwise they would have to be saving for their who life.

So you're saying that the Soviet economy suffered from too much saving and too little consumption? Hmmm, that may have been the case, though I'm not sure to what extent the financial system was to blame. Ordinary citizens could take loans from the state bank at rather low interest rates, but it was difficult to secure such loans.

Lack of proper quality consumer goods was due to working of the system from the top down rather than from down up. So consumers had to purchase the product that was not fully meeting their demand due to lack of other product out there and since market signals are not transmitted in Soviet economy the consumers goods lacked in quality.

Right, though market signals are not the only way for consumers to give feedback to producers about product quality. A planned economy could use a wide variety of consumer feedback mechanisms - they could have a simple rating system where consumers can vote for how much they enjoyed a product on a scale of 1 to 10, they could watch stocks to determine which products are selling well and which are not, they could run opinion polls and so on and so forth. Unfortunately, the Soviet Union did none of those things.

[Edric O]

Military hardware was I think the second biggest export of Soviet Union to third world countries.

Surely this was only AFTER the dissolving of the Soviet Union. Can't really have much of an arms race if you keep on selling you're arms right? Unless the logic was to use the profit to build even more arms or something. Seems unlikely. Also, this export was done by the government of the Soviet Union so unless you can a government a competitive trader like a company where it's CEO's and high ranking employees get paid more for more trade then I don't see how you can say that the scientists and workers of the soviet union were motivated by market trade since more sales did not mean more profit for them because this money would be used on the Union or grabbed by their corrupt leaders. Therefore there could not have been much monetary incentive.

You are right. Trade was done by the Soviet government, so all benefits from trade went into the state budget and could then be used for anything. There were no market incentives for workers or managers; at most there might have been some market incentives for high-level state bureaucrats who were in charge of international trade, if you want to call state-to-state trade deals a "market."

And of course the scientists and engineers got better money and other priviliges for being part of such projects.

Well maybe for being part of such projects, but I don't think there was much difference in pay once they were already working. Clearly the monetary incentive was reduced relative to America and most of the world, and yet the product was definetly comparable and the work/effort was there.

It seems to me this does much to dispel the myth that money is the only motivating factor in existence, and that quality can only be had through competition for said money.

Again, you are right and I agree completely. Yes, it is true that scientists, managers and workers involved in important projects were given higher pay than their counterparts working on other things. But this higher pay was not subject to market forces and it remained constant no matter what they did or how well they worked. So it wasn't a matter of telling them "we'll give you more money if you make better stuff" - rather, it was a matter of telling them "your work is very important, so your pay is above average; we expect you to do your duty and work hard." And this type of motivation seemed to work quite well.

(note also that although there were differences in pay between people in the Soviet Union, these differences were much smaller than in your average capitalist economy)

Military hardware is always sold by makers of it. You downgrade it so that the one going to export is not going to stand up against the one used domestically but you sell. USSR had special names for the airplanes that were variations of MIGs and SUs that were sold to India, China, North Korea, Egypt, Iran, Iraq, etc. And if due to your invention or innovation the hardware now have more countries desiring it than you would be rewarded. That was same in US and USSR. The more countries use your hardware the more prestige your country got as that means its people can make a better product. And it has to be a better product if you want to sell to non-aligned nations.

Things did not work that way. The Soviet Union never acted as the world's free market weapons dealer and gun shop. They didn't produce weapons for the purpose of selling them for a profit. Yes, of course the USSR exported weapons to friendly countries, but this was done for political rather than economic reasons. The Soviets sold guns to their friends and allies for the purpose of extending their political influence, not for the purpose of making money. The same applies to most civilian products that the USSR sold abroad.

Also, Soviet workers, factory managers - or anyone else for that matter - did not get pay rises or bonuses depending on how many weapons or ships or aircraft the USSR sold to the world. They were never given that kind of monetary incentive to produce good products. They were, however, given other kinds of incentives, such as prestige and recognition. Communist ideology is opposed to people competing for money or wealth, but it has no problem with people competing for other things.

And, of course, the Soviet Union also had a lot of innovation and development in products that were never sold to anyone, such as space technology.

[Tatar Khan]

I'm not sure if the lack of a credit system made a difference; credit can help drive an economy based on markets and the flow of money, but the Soviet Union had a planned economy, so money wasn't really an issue. Investment was done exclusively by the state, and the state already had all the nation's means of production at its disposal - it could determine the level of investment at will and would not have needed to borrow money in order to increase that level.

So you're saying that the Soviet economy suffered from too much saving and too little consumption? Hmmm, that may have been the case, though I'm not sure to what extent the financial system was to blame. Ordinary citizens could take loans from the state bank at rather low interest rates, but it was difficult to secure such loans.

The problem was that the state banks did not give out loans. There was no consumer loans to allow to buy up the 1000s cars that were produced.

Also even planned economy can not continuously pour money into the economy without fear of inflation and increase of the real prices of goods.

Finally since different projects would be of different risk the government of planned state economy not concerned with the payoff but concerned with inflation would choose always the way with less risk. The most riskless decision and the most safest path (and what did Paul-Maud'ib said about the safest path) which is to do nothing to change things.

Overall Soviet Union was growing at higher rate than US economy (4.7% average growth from 1970-1990 vs 3.3% growth for same period in US)but it was way too behind.

Soviet Union (1970-1990) UN stats database

GDP at constant 1990 prices

Million US Dollars

608454

640146

658196

708988

742989

762508

809522

851289

894735

924749

970084

1021505

1099582

1150794

1197388

1214179

1232858

1258464

1323948

1413988

1532992

US (1970-1990) from UN stats database.

GDP at constant 1990 prices

MillionUS Dollar

3037076

3142183

3317877

3512912

3496265

3490144

3677916

3849286

4065456

4194800

4184681

4290277

4205571

4395465

4711846

4905249

5073517

5243173

5459343

5652175

5757200

Soviet Union could not develop ABM treaty without breaking ABM treaty. SDI were no ABM system it was satellites and USSR had no such satellites in development or the budget to make them.

Soviet engineers and scientists knew that if they don't deliver they will loose the privileges they are enjoying and somebody else will replace them.

MIG's and SU's they were not there during WWII (MIG was but it was very bad at the same time). So what happened to Ilushin, Lavochkin, Yakovlev. They got taken apart engineers transfered to other position which were not as as privilegous as the ones they had before. IL is still there but no longer as a real military aircraft. How come Mighoyan, Suhov, and Tupolev took their place?

And monetary bonuses did exist, there were such for innovation and invention, for finishing ahead of schedule (disastrous thing to economy). Scientist got the money and villas and black sea and the tickets to performances of top stars for free and etc. This is all money (like a benefit package).

This system was back firing due to fact that not doing innovation was still good enough in other parts of the industry.

[Dunenewt]

Actually Ilushin and Yakovlev were still designing years after the Second Cold War ended, and the MiGs during WW2 weren't that bad.

Another thing, just because one nation has a SDI, it doesn't mean it is imperveous to missiles.  With the sheer amount the Soviets had it would be no problem at all to immobilise an SDI, which would only shoot down a couple of missiles.  A lot of these things are prestige issues more than anything.

[Edric O]

The problem was that the state banks did not give out loans. There was no consumer loans to allow to buy up the 1000s cars that were produced.

Are you sure about that? I do not have definite information on consumer banking in the USSR, but in pre-1989 Romania - which had more or less a carbon copy of the Soviet economic system - consumer loans existed, even though they were very rare and difficult to secure.

In any case, whether loans were rare or completely absent makes little difference. Your point is that they were not available for most people in most circumstances; that is true.

Now the question is, what role do loans play in a planned economy? Let's see... people take out loans to buy things they cannot afford. That means they have a great desire for those things - so great that they are willing to pay more money in the future (in the form of interest) just so they can have those things sooner rather than later. This should send a signal to the planning authorities that the goods bought with loaned money are in high demand but are too expensive for consumers to buy with their own money at the time they desire those goods. They should therefore invest in more efficient methods of producing those goods so that the price may be lowered, or invest in the development of substitute goods to reduce demand (for example, if people really want cars, one solution could be to improve public transport to make cars less necessary). So yes, I see how loans could be useful in a planned economy, as a signal that something is wrong and needs to be fixed; one of the goals of the planners should be to create such economic conditions that people will have no desire to take out loans.

Also even planned economy can not continuously pour money into the economy without fear of inflation and increase of the real prices of goods.

Of course. Any increase in the money supply should have to be justified by a corresponding increase in productivity. I believe socialism should use a monetary system where the value of a unit of currency is tied to a certain amount of labour, so for example $1 = 10 minutes of labour. Then the money supply can only expand if more labour is performed.

Finally since different projects would be of different risk the government of planned state economy not concerned with the payoff but concerned with inflation would choose always the way with less risk. The most riskless decision and the most safest path (and what did Paul-Maud'ib said about the safest path) which is to do nothing to change things.

And the solution to that problem, of course, is to give the government some reason to care about the payoff rather than just the inflationary potential of an investment gone bad. There are many ways to do this, but the basic idea is that the people should have some democratic means of holding the government accountable, so that they could reward the people in government for making wise investments and taking calculated risks by continuing to vote for them.

Overall Soviet Union was growing at higher rate than US economy (4.7% average growth from 1970-1990 vs 3.3% growth for same period in US)but it was way too behind.

Yes. The United States had too much of a head start.

Soviet Union could not develop ABM treaty without breaking ABM treaty. SDI were no ABM system it was satellites and USSR had no such satellites in development or the budget to make them.

Right, but as it turned out, the United States didn't manage to make the whole satellite thing work either. They only started working on the SDI; they never finished. In a sense, the Americans were bluffing. The Soviets could have bluffed too.

Soviet engineers and scientists knew that if they don't deliver they will loose the privileges they are enjoying and somebody else will replace them.

I support a system in which jobs are given to people based on their ability: If you prove yourself to be a good scientist, for example, you can get the job you like best in your scientific field. You will not earn much more than an average worker, but you will be able to do the work you love and you will get long holidays, a flexible schedule, priority in using some public services, and perhaps early retirement.

The Soviet Union used a somewhat similar benefit system to motivate scientists. Of course they also got more money than the average worker, and/or material benefits that were paid for by the state (such as getting to live on the Black Sea coast or getting free tickets to the best cultural events). However, as I mentioned before, such benefits were not subject to market forces, they were constant over time and they came with the job rather than being given out as variable rewards for working well on specific tasks. Besides, even when accounting for such benefits the difference in earnings between a scientist and an average worker was much smaller than in the West, and in any case the richest people under capitalism are CEOs and company owners, not scientists. The monetary incentives for scientists were much smaller in the Soviet Union than in the West, and the overall monetary incentives in the economy were far, far smaller in the Soviet Union than in the West. Yet the Soviet economy performed on average better than the American economy, and its level of scientific development was comparable to that in the West. This is evidence that monetary incentives are not as important for innovation as we tend to think they are - after all, even in the West, the richest people are not scientists but CEOs, company owners and bankers.

And monetary bonuses did exist, there were such for innovation and invention, for finishing ahead of schedule (disastrous thing to economy).

Yes, the idea of giving bonuses for completing work quickly (which was used particularly widely under Stalin) was a horrible idea, since it only encouraged people to do a sloppy job in order to finish as soon as possible. That's one mistake that should not be repeated.

As for innovation and invention, they are forms of work, and like all work they should be rewarded. Every inventor should receive a set amount of money from the state for his invention. Depending on whether the invention is meant for productive purposes or for entertainment purposes, the amount of reward money should be calculated based on such factors as the productive potential of the invention (how many hours of human labour it is going to save, weighed against the quantity of electricity and other resources that it requires to function), or the entertainment potential of the invention (how many people say they would like to use this new console instead of their old one). And of course measures should be taken to ensure impartial judgement, such as having a transparent evaluation process or having the same invention evaluated by two different groups of people who are not allowed to communicate with each other.

In any case, the point is to eliminate the unjust and counter-productive capitalist patent/copyright system, which stifles creativity by giving an inventor the power to stop others from making newer and better versions of his invention, as well as giving some inventors the ability to make such endless amounts of money from a single idea that they no longer need to come up with anything new ever again.

[Tatar Khan]

Loans are not only useful as market signals, loans also accelerate the return of invested money by the business in market economy. Thus the business is able to reinvest quicker and keep on producing the product in higher volumes thus reducing the price or produce the new product.

However loaning would go against the planned economy principals as interest on the loans would be profit.

Without the interest rates the banks would not give the loans because there is no way to compensate for risk they taking on. Risk that the person won't pay back. Also the people than would find it very handy to just run and take loans if there is not interest rate to worry about.

Of course. Any increase in the money supply should have to be justified by a corresponding increase in productivity. I believe socialism should use a monetary system where the value of a unit of currency is tied to a certain amount of labour, so for example $1 = 10 minutes of labour. Then the money supply can only expand if more labour is performed.

Ok lets say a papermill would buy additional equipment thus expanding the capital component. Since papermill is state owned this purchase is same as increase in money supply as additional money entered the economy. However the projection of increased paper and lumber demand pores wrong causing the new equipment to be unused. Thus there was and inflationary expanse of the economy and the new equipment was bought and money spend but did not get any money back due to wrong analysis.

If equipment would have produced something than the money spend on it would have been returned back.

Soviet union found the only way to cope with such a problems was through income tax, thus reducing  keeping the money supply in check, still even then the deficit by Gorbachev era was huge.

And the solution to that problem, of course, is to give the government some reason to care about the payoff rather than just the inflationary potential of an investment gone bad. There are many ways to do this, but the basic idea is that the people should have some democratic means of holding the government accountable, so that they could reward the people in government for making wise investments and taking calculated risks by continuing to vote for them.

Than the position as an official should carry financial reward or be in other way more appealing than not being the official in the government.

Than also the voter has to make the decision whether the current official and his level of risk acceptance is better than the other one. There is no real way to tell since only one was in the position to make such decisions. Finally, generally people are highly risk averse and would not take on the risks, very few people are willing to, hence there are fewer business men than employees.

Right, but as it turned out, the United States didn't manage to make the whole satellite thing work either. They only started working on the SDI; they never finished. In a sense, the Americans were bluffing. The Soviets could have bluffed too.

The need to do it disappeared.

I support a system in which jobs are given to people based on their ability: If you prove yourself to be a good scientist, for example, you can get the job you like best in your scientific field. You will not earn much more than an average worker, but you will be able to do the work you love and you will get long holidays, a flexible schedule, priority in using some public services, and perhaps early retirement. The Soviet Union used a somewhat similar benefit system to motivate scientists. Of course they also got more money than the average worker, and/or material benefits that were paid for by the state (such as getting to live on the Black Sea coast or getting free tickets to the best cultural events). However, as I mentioned before, such benefits were not subject to market forces, they were constant over time and they came with the job rather than being given out as variable rewards for working well on specific tasks.

How else would a scientist or engineer prove himself to be a good investment for the state to give all these benefits? And what would keeep him going when he got them? This means that the scientist must continue to prove his worth over others to keep the benefits secured behind him.

Besides, even when accounting for such benefits the difference in earnings between a scientist and an average worker was much smaller than in the West, and in any case the richest people under capitalism are CEOs and company owners, not scientists. The monetary incentives for scientists were much smaller in the Soviet Union than in the West, and the overall monetary incentives in the economy were far, far smaller in the Soviet Union than in the West. Yet the Soviet economy performed on average better than the American economy, and its level of scientific development was comparable to that in the West. This is evidence that monetary incentives are not as important for innovation as we tend to think they are - after all, even in the West, the richest people are not scientists but CEOs, company owners and bankers.

The richest people are usually in the west the ones that are willing to take necessary risks and to evaluate things properly thus making sure they won't get burned. Scientific progress is costly and is uncertain so this leads to high costs and high risks, that only people willing to take such a risk would be able to sponsor such things. Thus high risk requires a high payoff at the end.

Soviet Union was growing faster but that doesn't mean the growth would have continued at the same rate. It tends to drop as economy grows larger.

In scientific development Soviet Union began falling behind starting 1970s when it failed to produce mach-3 bomber at the same time as the US. Stealth technology remained undeveloped. NASA beat USSR to the moon due to its better engine technology. Soviet Union started to slowly lag behind.

Yes, the idea of giving bonuses for completing work quickly (which was used particularly widely under Stalin) was a horrible idea, since it only encouraged people to do a sloppy job in order to finish as soon as possible. That's one mistake that should not be repeated.

While such incentive leas people to find the new way of making things, it not only leads to sloppy job but in Soviet case it lead to overstock of things in some cases. Good example is Leningrad's Nuclear Power Plant. The turbines for it were completed a year ahead of schedule which meant that now they had to be stored int he warehouse as the original plan of directly installing them after they were built into power plant would not work, since only the foundations of the power plant were taking shape at that time. However, the size and necessity of special storage added a high cost to the whole project.

As for innovation and invention, they are forms of work, and like all work they should be rewarded. Every inventor should receive a set amount of money from the state for his invention. Depending on whether the invention is meant for productive purposes or for entertainment purposes, the amount of reward money should be calculated based on such factors as the productive potential of the invention (how many hours of human labour it is going to save, weighed against the quantity of electricity and other resources that it requires to function), or the entertainment potential of the invention (how many people say they would like to use this new console instead of their old one). And of course measures should be taken to ensure impartial judgement, such as having a transparent evaluation process or having the same invention evaluated by two different groups of people who are not allowed to communicate with each other.

You would have to estimate the total benefit of the innovation and invention over the whole life time of its use to be fair in giving the proper compensation to inventors and innovators. This requires the estimate of the life of the invention or innovation before something new comes to replace it. Estimation also would require the estimation of the input costs years ahead, finally estimation of the other innovations that could make this even more productive or less productive that could appear. Very hard to do, I don't think a good enough model can be realistically produced.

In market economy these analysis is carried out by firms that want to buy a new thing or develop it. however the analysis is usually more short run. Plus a failure of private firm to evaluate these benefits are less disastrous than state firm. Since if private firm fails than another one will take its place. With state firm the state firm would have to be bailed out leading to additional monetary expenditure and inflationary push.