Table of Contents
| Preface | |
| Note on the text | |
| List of plates | |
| List of maps | |
| Introduction | 1 |
| 1 | History's cruel tricks | 10 |
| 2 | Reviving the dream | 31 |
| 3 | The drama of reform | 58 |
| 4 | Waiting for the end of the world | 86 |
| 5 | Survival and cannibalism in the rust belt | 113 |
| 6 | Democracy without liberalism? | 142 |
| 7 | Idealism and treason | 171 |
| Notes | 197 |
| Further reading | 233 |
| Index | 237 |
Read a Sample Chapter
Chapter One
History's cruel tricks
Then Leonid Ilich [Brezhnev] appeared ... We lived fabulously, quietly stealing, quietly drinking.
[A voice interjects: not quietly.]
So be it.
(Ion Druta, Moldavian writer)
Plant closure has become a depressingly commonplace feature of industrial life.... Millions of people ... have experienced directly or indirectly the consequences of closure upon their own lives or upon those of their friends, relatives or communities.
(Tony Dickson and David Judge, on the capitalist world in the Brezhnev era)
Between 1970 and 1973, the world market price for crude oil moved steadily upwards. A nearly two-decade run ended during which supply had outpaced demand. More than that, spare capacity had disappeared, meaning that limited cutbacks in production could expect to have dramatic effects on price. When, in October 1973, the Arabs and Israelis suddenly went to war for the fourth time, Arab states, including the previously reluctant Saudis, announced a decision to roll out the ‘oil weapon’. After so many years, such talk had come to seem like crying wolf. This time, however, the Arab nations made good the threat. And, whereas the Middle East war concluded as abruptly as it had started, when Egypt agreed to a ceasefire in late October, the coordinated cutbacks in oil output took on a life of their own. Arcane oil jargon—‘differentials’,‘inventory build’—spread into water-cooler conversations and White House policy sessions. Public relations firms spun stories to show why big oil companies were not at all to blame. Government and industry belatedly initiated campaigns to encourage energy conservation among consumers who only the day before had been being goaded to indulge. But probably the most absurd moment of the ‘oil shock’ involved stepped-up exhortations for America to switch from energy-intensive industries to what were called knowledge-intensive industries, as if the US economy were governed by Soviet-style planners, and not the market.
Oil prices rocketed up 400 per cent in 1973, in just a few months, and the car industry, whose products were defiantly large and gas guzzling, suffered a crushing blow. Also clobbered were broad sectors tied to cars, such as steel manufacture. Of course, before 1973, many giant, energy-intensive ‘Fordist’ factories, producing big batches of capital goods, had experienced competitive troubles. But for those that had been muddling through, the oil crisis brought an inescapable day of reckoning. Between 1973 and 1975, US GDP dropped 6 per cent, while unemployment doubled to 9 per cent. Western Europe, which was far more dependent on oil from the Persian Gulf, suffered proportionately. Japan, probably the country most dependent on Middle East oil, saw its GDP drop for the first time in the post-war period. Beyond the immediate downturn, the entire fossil-fuel industrial economy—which had arisen in the late nineteenth century and which in the first half of the twentieth century had adopted mass production—seemed to be heading towards extinction.
In 1970s England, Sheffield and its surrounding industrial zone lost more than 150,000 jobs in steel; many more jobs vanished in engineering industries, and the city council became Sheffield's largest employer. During the same decade, Germany's powerhouse Ruhr Valley and its multitude of steelworks shed 100,000 jobs. In Pennsylvania—which had once been championed as the ‘Ruhr Valley of America’—‘Black Friday’ (30 September 1977) delivered a body blow to Bethlehem, whose steel had gone into the George Washington Bridge connecting Manhattan and New Jersey, the Golden Gate Bridge across San Francisco Bay, the National Gallery of Art in Washington, DC, and many of the silos for Intercontinental Ballistic Missiles. The US's entire industrial heartland of the eight Great Lake states—Ohio, Michigan, Illinois, Indiana, Wisconsin, Minnesota, New York, as well as Pennsylvania—was devastated.
More than 1,000 factories closed in the US over the 1970s. In a howl of desperation, two authors wrote that ‘we are currently witnessing the decline of industrial America, the bankruptcy or deterioration of some once-mighty manufacturing enterprises’. Other commentators more accurately noted the end not of industry per se, but a wrenching changeover to what was called flexible manufacturing. Yet, although manufacturing in the American Midwest began to grow again in the mid-1980s, manufacturing employment failed to recover at the same rate. In a few instances, even Big Steel pulled itself out of a hole, but the communities stayed down. ‘The Gary Works represents one of the most impressive turnarounds in the history of US industry,’ a steel industry analyst told a reporter in 1988. But, after a reinvestment of $2.9 billion over seven years, the restructured factory complex, which had once employed 21,000 people, had just 7,500 employees, with further reductions anticipated. ‘It's a great success story for the company,’ Gary's mayor told a reporter, ‘but it has been a painful experience for us’.
This wrenching of industries and communities left an indelible mark on the culture and popular psyche. A cheeky British film entitled The Full Monty (1997) retrospectively spotlighted a group of down-and-out steelworkers who hit upon a survival scheme: organize their own potbellied male striptease, recruiting performers from an unemployment queue. The film was set in Sheffield, and opened with footage from a bygone civic-booster film about a ‘city on the move, the jewel in Yorkshire's crown’. Now, its idle men were compelled to show their jewels to get by. The film's soundtrack appropriately featured disco, as in the industrial classic, Saturday Night Fever (1979), about a blue-collar dancing king, which had helped set off the late 1970s disco craze with the anthem of irrepressible dreams, ‘Staying Alive’. Desperate times brought desperate approaches. In Johnstown, Pennsylvania, ‘tour buses idle outside the moldering steel mills’, wrote a New York Times Magazine reporter in 1996. He described how Johnstown was ‘heading into a future in which the economy will be fed by an ambitious, seemingly quixotic experiment called heritage tourism’, which ‘retails the often unhappy narratives of unlucky places, and is clearly a growth industry’.
Monuments to misfortune soon pockmarked the entire industrial landscape of the West. The increases in oil prices in the 1970s had crystallized larger trends. Henry Kissinger, who served as President Richard Nixon's Secretary of State during what Washington took to calling the Arab oil embargo, later wrote that it ‘altered irrevocably the world as it had grown up in the post-war period’. Kissinger had in mind the geopolitical balance of power and the new centrality of international economics that complicated diplomacy. So-called stagflation—high unemployment (stagnation) plus inflation—confounded America's leading economists, and Watergate paralysed and disgraced Washington. Saigon and South Vietnam fell to the Communists in 1975. With much of US industry undergoing a painful overhaul, the superpower appeared at a low point, not at a crossroads leading to a resounding triumph in the cold war.
Oil windfall and institutional shortfall
From 1910 to 1950, when world oil output rose twelvefold, Russian production rose only fourfold. One expert, writing in the early 1950s, warned that the oil supply is 'the Achilles’ heel of the Soviet economy’. After the 1953 CIA-backed coup in Iran had helped block Soviet access to Iranian oil, the extensive Soviet manufacturing economy appeared to be in a pickle. But in 1959—some thirty years after a Soviet scientist had forecast the presence of vast oil deposits in the forested swamps of West Siberia—a gusher was struck. Between 1961 and 1969, five dozen new oilfields were identified, and the Kremlin went from being a net importer of oil to an exporter. Even more fortuitously, this desperately needed Siberian oil rush broke just as the 1973 Arab-Israeli War and accompanying oil shock caused an unexpected leap in world oil prices, and the greatest economic boon the Soviet Union ever experienced. Without the discovery of Siberian oil, the Soviet Union might have collapsed decades earlier.
From 1973 to 1985, energy exports accounted for 80 per cent of the USSR's expanding hard currency earnings. And that was not all. Other oil exporting countries—top customers for Soviet weapons—saw their oil revenues increase from $23 billion in 1972 to $140 billion in 1977. Many Arab oil states went on military spending sprees, increasing Moscow's oil windfall. What to do with all that cash? The Soviet leadership used its oil revenues to cushion the impact of the oil shock on its East European satellites. Oil money also paid for a huge Soviet military build-up that, incredibly, enabled the country to reach rough parity with the US. And it helped defray the costs of the war in Afghanistan, launched in the late 1970s. Oil money also went into higher salaries and better perks for the ever-expanding Soviet elite. And oil financed the acquisition of Western technology for making cars, synthetic fibres, and other products for consumers, as well as Western feed for Soviet livestock. In future, the inhabitants of the Soviet Union would look back fondly on the Brezhnev era, recalling the cornucopia of sausages that had been available in state stores at subsidized prices.
Oil seemed to save the Soviet Union in the 1970s, but it merely delayed the inevitable. The USSR had risen to become the world's largest producer of oil and natural gas, and the third largest of coal, but it nonetheless suffered chronic energy shortages—what the leading expert aptly called ‘a crisis amid plenty’. That was because Soviet factories consumed energy in horribly gluttonous quantities, as if it were free. Then, in 1983, Siberian oil output began to decline. Output would recover in 1986, but after that it again declined, this time uninterruptedly. Making matters worse, in 1986 world oil prices plummeted by 69 per cent, to one of their lowest levels in the post-war period. And the dollar, the currency of the oil trade, also dropped like a stone. ‘Overnight,’ the expert wrote, ‘the windfall oil and dollar profits the Soviets had been enjoying for years were wiped out’. By this time, hungover from its long oil bender, the Soviet leadership was belatedly trying to address its profound structural economic troubles.
Those troubles derived from the country's successes. Whereas, in the 1920s, the Soviet economy had been about 20 per cent industry, transport, and construction, by the mid-1980s that percentage had risen to around 70. No other country ever had such a high percentage of its economy in big factories and mines. And much of Soviet industry had been built during the 1930s, or rebuilt after the destruction of the Second World War according to 1930s specifications. The USSR's Bethlehem Pennsylvanias and Sheffields numbered in the thousands, and they were even more antiquated. But, flush with its oil windfall, the Soviet Union had avoided the painful devastation that befell the substantial, yet smaller, rust belts of the United States, Great Britain, and Germany. But it could not do so forever. In the 1990s, the overthrow of socialist planning would lay bare a far greater challenge of massive enterprise restructuring. Post-Communist Russia would inherit, and grandly privatize, history's largest ever assemblage of obsolete equipment.
Socialism's politically driven economy proved very good—too good—at putting up a rust belt; and, unlike a market economy, socialism proved very bad at taking its rust belt down. What had once been a source of the Soviet Union's strength and legitimization would become, when Russia rejoined the world economy, an enormous energy-consuming, value-subtracting burden, and ultimately, an invitation to scavenge and plunder. In the 1990s, export earnings from energy sources would continue—extending the elite's post-1973 oil debauch. Rather than supporting a huge military build-up and a sprawling empire, however, the oil (and gas) money would go into private offshore bank accounts and hideaways on the Spanish and French Rivieras. Russia's economic debacle embodied a delayed end, on a bigger scale and slightly camouflaged by oil flows, to an entire industrial epoch, of which it, too, formed a part, and whose demise had been clearly visible twenty years before in Germany's Ruhr Valley, Sheffield and England's North, and America's Midwest.
And that was just half the story. Obsolete industry can in theory be overcome, no matter how vast its extent. But even after junking planning, Russia was not able to overcome its unprecedentedly large industrial junk heap, or quickly to create substantial new, dynamic sectors. That was because Russia lacked the indispensable liberal institutions that make markets work, while it possessed a plethora of the kinds of institutions that inhibit effective market operation. Here was a banal but useful reminder: the market is not an economic but a political and institutional phenomenon. The proof of that proposition lies not in countries such as the United States, where effective courts and indispensable government regulation are taken for granted, or even ideologically denounced, but in the post-Soviet countries, where most market-facilitating institutions are lacking or function egregiously. Thus, obsolete as its physical plant had become, the Soviet Union's central dilemma—as post-Soviet Russia would demonstrate—was really political and institutional.
The twentieth century's great turn
The central Soviet dilemma was also geopolitical. In the 1980s the economy of India was arguably in worse shape (for different reasons), but India was not locked in a global superpower competition with the United States (allied with West Germany, France, Britain, Italy, Canada, and Japan). That rivalry, moreover, was not merely economic, technological, and military, but also political, cultural, and moral. From its inception, the Soviet Union had claimed to be an experiment in socialism, a superior alternative to capitalism, for the entire world. If socialism was not superior to capitalism, its existence could not be justified. In the inter-war period, during Stalin's violent crusade to build socialism, capitalism had seemed for many people to be synonymous with world imperialism, the senseless slaughter of the First World War, goose-stepping militarism, and Great Depression unemployment. Against that background, the idea of a non-capitalist world—with the same modern machines but supposedly with social justice—held wide appeal.
But in the Second World War fascism was defeated, and after the war the capitalist dictatorships embraced democracy. Instead of a final economic crisis anticipated by Stalin and others, capitalism experienced an unprecedented boom, which made the Depression a memory and homeownership a mass phenomenon. Economic growth in the US, after a robust 1950s, hit a phenomenal 52.8 per cent in the 1960s; more significantly, median family income rose 39.7 per cent over the decade. In Japan and West Germany, losers in the Second World War, economic ‘miracles’ led to revolutions in mass consumption. New media technologies, such as cinema and radio, which had seemed so convenient for interwar dictatorships seeking to spread propaganda, turned out to be conduits of a commercial mass culture impervious to state borders. Finally, all leading capitalist countries embraced the ‘welfare state’—a term coined during the Second World War—stabilizing their social orders, and challenging socialism on its own turf. In short, between the 1930s and the 1960s, the image and reality of capitalism changed radically. Affordable Levittown homes, ubiquitous department stores overflowing with inexpensive consumer goods, expanded health and retirement benefits, and increasingly democratic institutions were weapons altogether different from Nazi tanks.
As if that was not pressure enough, the Second World War and its aftermath also set in motion a wave of decolonization, which the Soviet Union sought to exploit but which ended up further undermining its position. The Soviet Union was a land empire, with a twist. Whereas the pre-revolutionary Russian empire comprised only non-ethnic provinces, aside from the Duchy of Finland and the small Central Asian ‘protectorates’ of Bukhara and Khiva, the Soviet Union consisted of fifteen nationally designated republics with state borders. Beginning in the 1920s, Moscow presided over an expansion of the republics’ national institutions and national consciousness, which endured the purges, mass deportations, and Russification. Two of the Union republics, Ukraine and Belarussia, got their own UN seats, and all underwent economic development. Proudly, the Soviet Union contrasted itself with the capitalist empires of Britain or France. By the 1970s, however, after almost all overseas territories controlled by capitalist countries had gained independence, the idea of a better form of empire became an anachronism. The Soviet Union, moreover, did not have just an ‘inner empire’ but also what George Orwell called an ‘outer empire’.
Chasing Hitler out of the Soviet Union back to Berlin presented Stalin with the irresistible opportunity of regaining some tsarist territories not reconquered in 1917-21, and with swallowing much of Eastern Europe. Not content merely to exercise political and military domination, the Soviet Union attempted after 1948 to clone satellite regimes. Yet Sovietization of Eastern Europe took place not during the 1930s Great Depression and fascist militarism, but during the post-war capitalist boom and deployment of comprehensive welfare states. In these altered circumstances, the fate of Soviet socialism was now irrevocably tied to the fate of the regimes in Eastern Europe. Already in the early 1950s, and especially after Nikita Khrushchev had denounced Stalin in 1956 and Poland and Hungary had erupted in revolt, Eastern Europe weighed down the Soviet leadership. ‘If we depart Hungary,’ Khrushchev told his colleagues behind closed doors, ‘it will give a great boost to the Americans, English, French—the imperialists. They will perceive it as a weakness on our part and go on the offensive’. Despite the crackdown, Hungary was eventually allowed to legalize some private enterprise, while Poland halted the collectivization of agriculture and conceded a prominent role for the Catholic Church, opening fissures in the Soviet model of socialism.
In 1968, Moscow again felt compelled to invade an ostensible ally, to crush the efforts to ‘reform’ socialism in Czechoslovakia, which became particularly embittered and damaged the USSR's international prestige. Two years later, and again in 1976, mass strikes rocked Poland. In 1978, the first non-Italian since 1523, Karol Woityla, archbishop of Krakow, was chosen pope. The next year, on his first pilgrimage home, more than ten million Poles attended outdoor celebrations of the mass, often weeping with joy. In 1980, Polish workers, inspired by the pope and provoked by price increases, rose en masse, forming a countrywide independent trade union and bringing the socialist system to the point of liquidation. A crackdown by Polish leaders in December 1981 saved the regime, for the time being. To pacify workers the Polish regime borrowed from the West and imported consumer goods, beginning a dependency that became common across the Soviet bloc. East Germany, which abutted a far richer West Germany, eventually accumulated a $26.5 billion foreign debt, whose servicing absorbed 60 per cent of annual export earnings. But to buy off its walled-in people, the party leadership saw no alternative to increasing consumer imports and thus Western dependence.
In Hungary, Poland, East Germany, and Czechoslovakia, the only force holding back the long-term tidal pull of the West appeared to be Soviet resolve. The acquisition of an outer empire in Eastern Europe—what, again, looked like a Soviet strength—had proved to be a dangerous vulnerability. Of course, in the late 1940s, when Soviet-style socialism first spread to Eastern Europe, it had seemed the leading edge of a possible world takeover, especially after the 1949 victory of the Chinese Communists in the world's most populous country. Few people understood that a major shift had indeed occurred—but in the opposite direction, to the grave detriment of Soviet socialism. Simply put, socialism was utterly dependent on the fortunes of capitalism, and the differences between capitalism in the Great Depression and capitalism in the post-war world were nothing short of earth shattering. No less momentous, the United States, which during the period of the Soviet Union's rise prior to the Second World War had remained somewhat aloof from European and Asian affairs, now assumed a vigorous role as ‘leader of the free world’, uniting previously fractious capitalist powers under its leadership to counter the Soviet threat.
Imagine a geopolitical contest in which one side says, I will take West Germany and France, you get East Germany and Romania; I will take Britain and Italy, you get Bulgaria and Hungary; I will take Japan and Saudi Arabia, you get Cuba and Angola. Even Communist China became a threat to the Soviet Union after the Chinese split with Moscow and put themselves forward as an alternative model for the Third World. And what a burden Third World entanglements could be! In the 1970s Somalia-Ethiopia conflict, the Soviet Union decided to airlift heavy tanks to Ethiopia, but because long-distance supply planes could carry only a single tank, transport exceeded the cost of the expensive tanks by five times—never mind what a superpower was doing seeking influence chiefly in countries whose main industry was civil war. The US, which had its own ambitions, opposed Soviet influence by arming proxies. And in the 1975 Helsinki Accords, the US exchanged formal recognition of post-war European borders, a long-held dream of the Soviet leadership, for the Soviets’ written pledge to uphold human rights. This trade-off, whose importance the CIA completely missed, led to an international legal and moral ‘full court press’ that Soviet diplomats and negotiators felt alongside Western military, economic, and cultural might.
Panic, humiliation, defection
Leonid Brezhnev, meeting with President Richard Nixon at San Clemente, California, in June 1973, had made a desperate attempt to protect Soviet-American détente by urging a new joint initiative for the Middle East. But Henry Kissinger dismissed Brezhnev's warnings of impending war between Arabs and Israelis as a negotiating ploy; Kissinger remained unmoved even after the Soviets began to ferry diplomatic personnel and their families out of Arab states. Of course, following the outbreak of hostilities and the uptick in oil prices, the Soviet Union reaped benefits far greater than anything détente had delivered. Inside the Kremlin, the earlier anxiety about the negative effects of a Middle East war must have seemed comical.
(Continues...)
Excerpted from Armageddon Averted by Stephen Kotkin. Copyright © 2001 by Stephen Kotkin. Excerpted by permission. All rights reserved. No part of this excerpt may be reproduced or reprinted without permission in writing from the publisher.
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