The price of oil in perspective

Ed. Note: Boing Boing's current guestblogger Clay Shirky is the author of Here Comes Everybody: The Power of Organizing Without Organizations. He teaches at the Interactive Telecommunications Program at NYU, where he works on the overlap of social and technological networks.

As the price of oil has fallen from its dramatic highs of just a few months, ago, I often find myself thinking back to an essay by Yegor Gaidar, an economist and acting prime minister of Russia from 1991 to 1994. The essay, The Soviet Collapse, is subtitled "Grain and Oil" and tells the story of the end of the Soviet Union as the interaction of the price of those two goods.

The Soviet Collapse starts with the history of centrally-managed grain production, an unmitigated but slow-motion disaster, which they then proceeded to patch by importing grain with the budget surplus from rising oil prices, starting in the 1970s. That worked for a while, and then it stopped working.

The timeline of the collapse of the Soviet Union can be traced to September 13, 1985. On this date, Sheikh Ahmed Zaki Yamani, the minister of oil of Saudi Arabia, declared that the monarchy had decided to alter its oil policy radically. The Saudis stopped protecting oil prices, and Saudi Arabia quickly regained its share in the world market. During the next six months, oil production in Saudi Arabia increased fourfold, while oil prices collapsed by approximately the same amount in real terms.

As a result, the Soviet Union lost approximately $20 billion per year, money without which the country simply could not survive. The Soviet leadership was confronted with a difficult decision on how to adjust. [...] the Soviet leadership decided to adopt a policy of effectively disregarding the problem in hopes that it would somehow wither away. Instead of implementing actual reforms, the Soviet Union started to borrow money from abroad while its international credit rating was still strong. It borrowed heavily from 1985 to 1988, but in 1989 the Soviet economy stalled completely.

For an economics essay filled with price and output charts, it's a surprisingly gripping read. It's also a reminder of what's at stake now. Because oil consumption matters more than production to English-speaking countries, our press often covers the price of oil as a question of how often people drive to the mall. For countries like Russia, however, now as much as then, the price of oil has profound existential ramifications. Re-reading this, I got a picture of how geo-politically dramatic 2009 could turn out to be.

The Soviet Collapse: Grain and Oil