The Soviet collapse is not merely a historical question. Observers fear that the present Russian system has fallen into similar economic and political stagnation and that what happened then can happen again. Political scientists need to become more aware of the potential for system collapse.

Many Russians refuse to believe that the Soviet Union collapsed largely because of the inherent economic inefficiency of socialism. They blame sinister forces, especially the Americans, the functional equivalent of the “stab in the back” myth that so harmed Weimar Germany. The real explanation is that socialist economies—meaning state-owned and centrally planned, “Communist” if you prefer—work poorly. They do not collapse overnight but slowly run down. Centrally planned economies can grow fast, as did the Soviet Union under the Five-Year Plans. A largely preindustrial country borrowed capitalist technology and threw all its resources, including labor, into giant projects. From the 1930s and into the 1960s, it seemed possible that the Soviet economy could reach U.S. levels.

But as the Soviet Union tried to catch up, its economy became more complex and harder to control. Gosplan’s input-output tables required hundreds of mathematicians to make the thousands of calculations to set economic targets on a centralized basis. Product quality was poor, as only quantity was calculated and required. Designs, often copied from old Western products, were out of date. Efficiency counted for nothing; there was not even a Russian word for efficiency (the closest was “effective”). Many factories produced things nobody wanted.

The consumer sector, deliberately shortchanged, offered too few products to motivate Soviet workers, who had to wait years for an apartment or a car. Accordingly, workers did not exert themselves but chuckled: “They pretend to pay us, and we pretend to work.” Many took afternoons off to shop for scarce goods; standing in lines took hours each week. These and other factors made Soviets angry with the system. During the 1960s, the Soviet economy began to slow, especially in comparison to the surging economies of West Europe and the Pacific Rim. By the 1970s, decay was obvious.

The system, however, could have lumbered on in shabby backwardness. The real killer was technological lag, especially in the Soviet military. Computers were transforming Western businesses, research labs, and military systems. The Soviets fell behind in computerization, and the Soviet military faced obsolescence. U.S. President Ronald Reagan promoted a “Star Wars” shield in space that would make America invulnerable. An important sector of the Soviet military thus turned to economic and technological reform out of the fear of falling behind. Many thinking Soviet Party people, especially younger ones, knew, by the 1980s, that economic reforms were urgent and were eager for someone like Gorbachev. But by themselves, they could not prevail against the conservative forces of managers and apparatchiki, many of whose jobs were at stake. It took the high-tech sections of the armed forces to ally themselves with Gorbachev and give the green light to economic reforms to lead to military technology to equal the American threat.

At no time did Mikhail Gorbachev adopt a thoroughgoing plan for economic reform. His advisors presented him with several plans, each bolder than the previous, but he never implemented any. He never wanted capitalism; instead, he sought a middle path or “third way” between capitalism and socialism. Gorbachev hesitated and changed his mind more or less annually, one year for economic reform, the next year against. Later, he admitted several mistakes. First, he later said, he should have liberalized agriculture, as the Chinese did under Deng. Instead, Gorbachev tried a couple of timid steps that he inherited from his mentor, the late Andropov: “intensification” and an antialcohol campaign. Both failed.

When it came to real reforms, Gorbachev choked, both out of fear of the consequences and in the face of massive resistance by conservative Soviet forces. Gorbachev finally freed most prices but did not privatize industry, resulting in too many rubles chasing too few goods: inflation. Everyone wanted dollars as the ruble dwindled in value. Worried citizens feared bottomless economic decline. Against this background, Gorbachev’s own cabinet plotted a coup in 1991. Before the year ended, the Soviet Union was dissolved, Gorbachev was a private citizen, and Yeltsin was president of a new Russian Federation. At last, reform started looking serious, but Yeltsin, too, faced opposition from conservative forces.

The Russian economy, unlike China’s, is unimpressive. Russia’s dangerous dependency on oil and natural gas exports puts it on a roller coaster: down in the 1990s, up at the turn of the century, down sharply in the 2008–2009 recession, booming in the mid-2000s, then slow in the 2010s. When oil is high, Russia acts rich, but its income goes mostly to Kremlin cronies who control state-related industries. In the good years, Moscow has budget surpluses and cash reserves, and money trickles down to make most Russians content with the economy and the government. In the bad years, budgets shrink and Russians get angry. Aside from energy and mineral exports, Russia produces little else. Government subsidies prop up inefficient Soviet-era industries that cannot compete with other lands’ manufactured goods. Productivity and investment are weak because entrepreneurs fear seizure of their property and imprisonment for “tax evasion.” Better to take your capital and go abroad.

Russia is another example of the “oil curse” seen in Mexico and Nigeria. Russia could have had stable, diversified growth if Gorbachev and Yeltsin had seriously restructured the Soviet/Russian economy, but they stayed on the path of energy and mineral exports. Poland initiated a shock therapy at the beginning of 1991 and, in two years, had overcome inflation and industrial decline to enjoy rapid growth.

Yeltsin’s first prime minister (until late 1992) and later finance minister, the dynamic reformer Yegor Gaidar, tried shock therapy when he privatized the large, obsolete Communist industrial enterprises. Inefficient and overstaffed and with no concern for consumers, many Soviet plants actually subtracted value from the raw materials they processed. But these industries were the wealth and power of the bureaucrats who ran them and gave employment to those who listlessly worked in them. Accordingly, the industries pressured Moscow to keep the subsidies flowing. In any rational system, they would have been declared bankrupt. But you cannot throw millions of people out of work all at once, protested many Russians.

A handful of clever operators bought up factories and raw materials cheap and turned themselves into a new class of capitalists. Many of these industries still got government subsidies (such as cheap energy), which gave the new owners enormous profits for exported oil and minerals. Much of the profit did not return to Russia but went into foreign banks, a pattern typical of South America. Because this capital was not recycled back into the Russian economy, the rest of the economy declined, making poor people poorer. Capitalism in Russia began as asset stripping, which is no basis for long-term growth.

In August 1998, the dysfunctional economy crashed. Public finances lagged. Russia was collecting less than half the taxes it was supposed to—everyone cheated on taxes—and the budget went dangerously into deficit, so the Yeltsin government simply printed more money. Banks—and anyone in Russia could open a bank—were unregulated and made unsecured loans to friends. The chief monetary instrument of Russian banks was U.S. $100 bills, some of them counterfeit. Knowing the perils of keeping money in Russia, many stash billions in flight capital offshore (possibly $200 billion in 2014). When the system crashed in 1998, the ruble lost three-quarters of its value in relation to hard currencies. Many banks closed, leaving depositors with nothing. Russia’s fledgling stock markets dived. Some industries collapsed. Russia defaulted on its loans (biggest losers: German banks, who lent more than $30 billion to Russia) and had to beg for new credit. Badly burned, foreign investors fled Russia.

Russians felt angry and betrayed. The Americans had told them that the free market is the path to prosperity, but it brought only misery. A third of Russians fell below the official (very low) poverty line. Actually, Russia had never fully implemented a market system. Much Western advice was ignored. Most of the $66 billion in Western aid disappeared. There were too many government subsidies and tax breaks, and too few rules and regulations that keep a market economy steady. Money, always a weak point with Russians, was just something you printed. In the words of one Russian reformer, it was “the most expensive economic education in history.”

Before the 1998 collapse, some people got rich fast while many went hungry. Having long been taught by the Communists that material equality is good and just, Russians witnessed the explosive growth of inequality. Some biznesmeny and mafiosi (the two words are linked in the Russian mind) enjoyed new wealth while most Russians lived worse than ever.

Initially, some good emerged from the rubble of the ruble. Fake businesses collapsed, and entrepreneurs started investing their profits in Russia. In the years of high oil prices, Russia’s economy grew by several percent a year. Russia’s trade balance was very positive, the federal budget enjoyed surpluses, and inflation eased from 80 percent in 1998 to a few percent. Putin’s reforms of taxes, banks, and land sales promoted growth. Hourly wages grew twelvefold—from less than half a dollar to more than $12—from 1999 to 2012. Said Putin in 2002: “Our economy must grow much faster” (Stalin said the same in 1931), and Putin largely delivered.

But some of Putin’s policies worked against rational, long-term economic growth. He seized the properties of oligarchs he disliked, such as Khodorkovsky, and of foreign investors, giving the entire Russian oil and gas industry to siloviki, who both serve the Kremlin and get rich. Seeing Kremlin friends take over major firms persuaded capitalists, both foreign and domestic, to not invest, stunting Russian growth. Why develop a business if it will be taken from you?

Putin described the breakup of the Soviet Union as “the greatest geopolitical catastrophe of the century” and worried that the “epidemic of collapse has spilled over into Russia itself.” Most Russians agreed. Russians call the non-Russian republics that departed from the Soviet Union in 1991 the “near abroad.” Most of them had been part of the tsarist empire, and many Russians still think of them as belonging to Russia. Some want to restore the Russian empire, especially the Russian army, which still has troops in most of the ex-Soviet republics.

In many ex-Soviet republics, the “new” leaders are old Party big shots whose corrupt and authoritarian rule continues. One crucial factor in Russian thinking concerns the 25 million ethnic Russians who live in the near abroad. (The term does not refer to the former East European satellites such as Poland and Hungary.) Some Russians in these newly independent countries feel threatened. Moscow claims the right and duty to rescue them by military means. Putin now looks like he is using this as an excuse to seize all or part of the near abroad.

Recovery of the lost republics could come about by more-subtle means: economics. As the economies of other republics plunged downward, some turned desperately to Moscow for help. Under the banner of the Commonwealth of Independent States, Moscow delivers some aid (for example, a good deal on oil and natural gas) but, in return, gets trade concessions and general obedience. Moscow successfully used this approach on Belarus—which now uses the Russian ruble as its currency—and sometimes interrupts the flow of natural gas to Ukraine.

In Georgia and Ukraine, Putin used military power. The Muslim Abkhazians of western Georgia broke away by force of arms, many supplied quietly by the Russian army. Georgia had originally refused to join the CIS in 1991 but, faced with military defeat, did so in 1994. In 2008, Georgian forces attempted to reassert control over breakaway South Ossetia, but Russian forces smashed them back. Moscow claimed it was protecting human rights and local desires for independence from Georgia, but it was actually warning Georgia to not join NATO.

In 2014, the corrupt Ukrainian regime was overthrown by street protesters demanding to realign with the EU and NATO. Putin was enraged; for him, Ukraine is still a Russian province and should bow to Moscow. Khrushchev had transferred Crimea to Ukraine in 1954, but it is still home to the Russian Black Sea fleet. Putin infiltrated soldiers and annexed Crimea. He then aided Russian-speaking separatists to break away from Ukraine. Basically, Putin won; Ukraine was too weak, and the West had no practical way to counter Putin, who threatened to “protect” the other Russian-speakers in the ex-Soviet republics. A new Cold War threatened. He threatened to “protect” other Russian-speaking areas of Ukraine. A new cold war threatened.

Should the West oppose him? Military confrontation could result if Putin targets NATO members Lithuania, Latvia, and Estonia. Moscow used economic bribes, threats, and armed infiltrators to recoup the near abroad. Gazprom, 51 percent owned and totally controlled by the government, sold natural gas cheap to those ex-Soviet states that stayed loyal. Those who turned westward saw prices double. The move into Ukraine underscored Putin’s Soviet-era mentality—some say tsarist-era—and alarmed Europe, which gets much of its natural gas from Russia.

Many observers of the Russian economy see a botched job. Free-market capitalism has not taken root. Oligarchs looted state enterprises and stashed the money abroad; then Putin stole it back. The oil and gas industries have returned to state control. After an initial flurry of foreign investment in the 1990s, investors learned that siloviki tied to the Kremlin run most large enterprises and block competition. Most foreign investors pulled out, and few now try to enter the Russian market. Corruption and lawlessness link authorities (including the police) and mafias. There are, to be sure, some good signs. Part of Russia’s economy is private and, after the collapse of 1998, grew. Inflation dropped, and current account balances are positive, thanks to oil exports. Health and economic indicators have improved.

Which way will Russia face, east or west? Moscow is frosty toward Washington—Putin compared U.S. policies to the Third Reich—while it builds ties to Beijing. Unfortunately, in some ways, Russia and China are natural allies, both nurturing grudges against the West and with complementary economies, Russian raw materials traded for Chinese manufactured goods. In the long run, to be sure, Russia may not want to serve as junior partner and raw materials supplier to China. The last thing the United States needs is another Sino-Russian bloc and a new cold war. Russia is a problem, a huge angry country that feels it has been humiliated. Moscow’s message: “Treat us with respect and keep out of our affairs!” A country that alters borders by military force, however, is bound to create a hostile environment.

Clearly, Russia is no democracy, Freedom House demoted Russia from “partly free” to “not free,” closer to dictatorship than to democracy. Can Russians eventually govern themselves in a moderate, democratic fashion? I think they can, but it will take many years. There is nothing genetically authoritarian about Russians. In the twentieth century, Germans and Spaniards were deemed unfit for responsible self-government, but now they are practicing democracy as well as any Europeans. Which path Russia takes—toward peace and democracy or toward expansion and autocracy—will form much of this century’s political developments.