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Soviet Union’s Failure

The latter half of the 20th century saw the extensive economic restructuring and reordering of global economies. The collapse of the USSR was a key component of this change, and showcased the inability of Soviet policies to respond to changing economic needs. On the other had, South Korea was achieved great economic success. While The USSR collapsed because both internal and external factors operating in opposition to its economic agenda, South Korea was able to utilize external forces and harness internal drivers toward extraordinary economic growth.

The Soviet Union’s economic and political collapse in the 1980-1990s occurred due to the rigidity of its economic system and despite the need for change. Gorbachev’s policies of Perestroika and Glasnost undermined the very foundations of the socialist political system in the USSR. Socialism was never meant to take place in a nation like Russia where socialist rule was imposed upon the people rather than had sprung out of natural revolution, as Marx had envisioned (this Bourgeoisie class was non-existent & furthermore the civil war had cause most of the intellectual class to emigrate from Russia) (Hobsbawm pg. 379).

The USSR’s flawed policies started at its inception because of mindless attempts to force Russia to fit into a narrow political ideology of socialism instead of observing the potential of capitalism carried. The October Revolution shaped the early development of the Soviet Union. The early years of the USSR included a reemergence of serfdom in the form of collectivization and the industrialization of farming (Scott pg. 203). This first era of Soviet communism failed to achieve substantial industrial capacity for Russia but served as an example that that centered control over a large mass of people had high production potential.

During WWII, the USSR’s engagement came at a high cost of human lives. It was proportionally higher than other European nations because of poor planning and distribution of armaments. This alluded to the fact that the nation’s road to modernization and industrialization after the war was also going to need to depend on expendable labor. The splitting of Germany and Eastern Europe after WWII created a new and polarized world between the capitalists and the communists, with the newly-decolonized third world in the middle.

The Eastern European nations fell under the sphere of the Soviets along with eastern Germany, while the rest of the world either supported the capitalistic ideals of the US or remained neutral until internal revolutions caused them to choose a side. It was during this Cold War era, that the USSR experienced its greatest progress yet eventual stagnating problems. The Soviet economies were under the centralized control of the Kremlin. The advantage of this is that it allowed Moscow to forcibly industrialize the USSR and manage resources from its satellites.

However over-centralization resulted in a shortage of managers (Hobsbawm. pg. 382). In an effort to remedy this, the economic apparatus of the Soviet Union attempted to become extremely bureaucratic, but this would only cause inefficiently slow responses to time-sensitive problems. The state became good at creating new industries, but was not effective at running them (pg. 381). The economic system was inefficient at distributing domestic goods to citizens and led to the rise of a black market, whose growing presence would undermine the efforts of domestic industries.

This occurred because the economic system of the USSR was only able at providing its citizens with the bare minimum, essentially lowering the quality of life and under-developing the nation (pg. 385). Unable to trade outside its own sphere, the Soviet Union had no option but to adopt an import-substitution strategy. The problem was, that the Soviet Union had no real capital. It could not profit from selling its goods to its own citizens because they were making the lowest wages to begin with.

The Soviet system was grossly inefficient at dealing with inventions and innovations, thus failed to offer their citizenry ways to increase their quality of life. The Prague Spring and movement toward liberalization within the soviet satellites during the late 1960s signaled weakening support for socialism . In the 1970s Russia experienced a gross economic slowdown. The Cadres of the Nomenklatura, signaled the need for economic and political reform. However nepotism and ill-fitting socialist policy making continued.

The Oil Crisis of the 1970s was a get-out-of jail card for the USSR and allowed it to engage the capitalist west in trade. The USSR exported oil for high prices and imported needed goods. However it also postponed much-needed economic reform (pg. 474). When the Romanian oil fields dried up, the USSR’s fate was sealed. Gorbachev’s rise to power and implementation of Glasnost (openness) and Perestroika (economic/political reform) in 1987 were needed changes that had come too late. Gorbachev’s actions de-legitimized the socialist party and destroyed inefficient economic mechanisms yet failed to provide any alternative (pg. 483).

The reunification of Germany and the independence of satellite states from Mother Russia and Moscow’s control led to eventual economic failure and strutural collapse in 1991. Where the Soviet Union failed, South Korea succeeded. Since the end of Korea’s subjugation to Japanese rule (previous to WWII), it has been a capitalist paradise (Cumings pg. 168). The legacy Japanese rule left in Korea enabled it to become economically successful and sufficient on its own. The Japanese had given the Koreans, the model of Zaibatsus (family owned firms that consisted of many corporations) for their Chaebols.

The Japanese also had industrialized Korea and employed many of its workers. Numbers of employment saw drastic growths every year: 1932 – 384,951 industry Korean workers – 1943 – 1,321,713 iKws (pg. 170). One of the most important lasting effects of Japanese rule would be the culture of higher education. By the 1920s Korea was seeing the rise of a Bourgeoisie social class (pg. 170). Japanese rule over Korea was loose enough in the years prior to WWII to allow for Korean entrepreneurs to thrive within the Japanese infrastructure.

The strain WWII upon placed upon Japan also allowed Koreans to regain some control and experience bureaucratic and military positions of power (pg. 176). At the end of the war Korea was liberated from Japan and placed under the care of the United States. Korea emerged from the end of WWII with many comparative advantages with which it could compete with in the capitalist world (Cummings pg. 300). Although Korea itself did not necessarily subscribe to capitalism, intelligent cooperative management between the government and Chaebols allowed Korea to exploit its advantages and experience growth through rapid import-substitution strategies.

Korea’s main advantage was its proximity to the USSR. Not because Korea considered considering adopting socialism or depending upon the nation for trade but because the United States’ fear of these events occurring meant the United States would provide all necessary funding for domestic development in Korea to keep it from going red. Subsequently Korea’s adoption of the ISI policy (import substitution industrialization) in the 1950s garnered full American support (pg. 305). At the end of the decade, 5 out of 6 imports to Korea were grants from America (pg. 306).

From 1945-1965 Korea had recieved a total of 12 billion dollars from Uncle Sam (pg. 306). The 1960s saw the rise of the anti-corporate, and Japan-wary Korean leader, Park Chung Hee. While the US proposed a re-stitching of Korea and Japan to solidify an anti-Soviet front in East Asia, Park saw this as a threat upon Korea’s sovereignty and was suspicious of the Chaebols, whom were the most engaged with the US grants and were most likely to create bridges with Japan (pg. 312). Park went around threatening to arrest S.

Korea’s 10 Chaebols. However before this could happen he and the Chaebols came to an agreement in which the Chaebols were obliged to invest in new budding domestic industries and ‘donate’ shares to the government (pg. 312). This form of investment proved to very effective. The Korean government also manipulated the national banks of Seoul to its advantage. The banks would give out loans to industrial entrepreneurs, but retained control over the prices, the number of competitors and eseentially the entire market.

By the 1960s, some of the United States’ industries were moving into Korea where production was cheaper. South Korea was the first receiver of Foreign Direct Investments (FDIs) in all of East Asia and because it overvalued it’s the Dollar in relation to the Hwan, was able to increase profits yet remain an economically viable choice for investment. Japan noticed this opportunity and was bullied into paying reparations of around 800 million dollars in grants, loans and investments in exchange for the lowering of trade barriers between the nations (pg. 321).

By the mid 1970s Korea’s economy was snowballing. In the mid 90s before the Asian crisis, it was ranked the 11th largest economy worldwide. The Asian crisis and involvement of the IMF forced Korea to become more transparent. The IMFs concerns were with the fact 10 large firms formed 60% of the national economy as well as the policy lending practices and currency valuation by Korea’s financial sector (pg. 330). Despite these bumps in the road, Korea was able to implement changes quickly and well enough to the IMFs satisfaction, and receive a multibillion-dollar bailout to reignite its economy.

Korea remains today one of the strongest economies and enjoys continued industrial growth. The reasons why Korea experienced great success in relation to the USSR’s failure can be summed up into five parts. (pg. 317). First, the Koreans unlike the Soviets paid attention to the efficacy of industries and made changes when necessary. The USSR would let profit-losing state-owned enterprises exist for decades while Korea was effective in reinvesting in and turning around failing industries. The second part is due to the well-educated technocrats that formed the majority of Korean society.

South Korea’s focus on high-education made it easier for them to train their workers, and in turn increase their productivity. This paired with the third part, required military conscription created a force of technocratic workers that was trained to obey orders and work quickly and efficiently. The USSR lacked an educated working class thus could only produce lower industrial products at poor quality. Fourth, there were ‘rewards for friends’. The nepotism that existed in Korea was not hurtful to the nation as it was in the USSR.

And fifth, the firms (Chaebols) had the same goals as the government in terms of economic success and profit making. Reinvesting in the state along with the inflow of foreign investment allowed the government to loan money to the Chaebols and ‘keep hemorrhaging money’ into the industrialization program (pg. 316). The South Korean miracle was created out of a number of factors working together to ensure the ISIs program and nations success. Meanwhile the USSR’s failed attempt at ISIs was due to a myriad of ineffective internal structures and external inconveniences of the polarized Soviet/Capitalistic world.

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