How Do Regimes Collapse?

We see managers run enterprises into the ground all the time.

My copy of Collapse: The Fall of the Soviet Union (2021) by Vladislav Zubok has shown up.  Zubok disputes the idea that the Soviet Union was on an unsustainable course and was thus destined to collapse.  Instead, he argues that Mikhail Gorbachev helped institute processes that “transformed the conservative reforms … into a revolutionary game and ultimately removed the critical props on which the Soviet system and state were resting.”

So, … this story is a murder mystery: What were these critical props, and why would anyone remove them?  But, we know whodunnit: “Gorbachev and his reform-minded entourage.”

The subtitle of the introductory chapter is “A Puzzle,” but the author never gets around to articulating what the puzzle is.  But there are puzzles.  One would be: If the people who run the system perceive that it is unsustainable, then why don’t they adapt and nudge the system on to a trajectory that does not terminate in sudden collapse? 

Let’s generalize: How is it that regimes, empires, or civilizations can collapse?  We can certainly come up with a list of examples.  Consider, of course, the end of Minoan civilization about 3,500 years ago.  The Santorini caldera, situated right in the middle of the Aegean, exploded.  It cast a tsunami down on Crete, devastating all of the communities on the north side of the island.  Minoan society could not recover from this natural disaster.  Mycenaean Greeks invaded, absorbed what was left of the Minoan population, and that was that.  Minoan civilization remained a complete mystery until people like Heinrich von Schliemann and Arthur Evans started digging around.

But, let’s put aside exogenous factors—factors that are external to the system—such as natural disasters or invasions by Central Asians nomads – Huns, Mongols, Magyars, Turkic peoples and such.  Exogenous factors include Acts of God, things that the people operating the system have no control over.  Instead, let’s consider endogenous factors—factors that are part of the system.  Endogenous factors would include the things that the people running the system may choose to do.  So, how do the managers of the system manage to run it into the ground?

One could argue that we see managers run systems into the ground all the time.  For example, we see commercial enterprises, “firms,” go bankrupt.  It turns out that society maintains processes external to the firm for managing bankruptcy.  Here the idea is that a given enterprise might actually maintain a steady stream of income (“cash flow”).  It may also be the case, however, that the firm is so stoked up on debt that it yet can’t cover its debt payments in addition to operating expenses.  That’s the kind of firm that would be a good candidate for “reorganization” through bankruptcy processes without ever having to stop operating.  Basically, parties who own the firm’s debt assume management of the firm and use the bankruptcy process, overseen by a third party (the court), to figure out what debt claims the firm should shed in order to enable it to get its debt servicing costs down and allow it to get back to business.

“Reorganization” enables the firm to avoid being completely run into the ground.  Instead, the firm comes out of reorganization with its accounting books looking a lot healthier.  The firm might be smaller.  It might have shed some assets and certain lines of business, but it avoids oblivion.  It turns out, however, that the bankruptcy process contemplates the prospect of the firm not emerging from it and remaining a going concern.  The firm might be rendered unto oblivion.  That is what “liquidation” is about.  Indeed, enterprises that do not maintain reasonable cash flows are good candidates for liquidation: sell off the assets—physical assets, intellectual properties and such—and pay off the debt holders to the extent they can be paid off, and that is that.

What happens, however, when the enterprise is your entire country?   The Soviet experiment involved efforts to run the country as one big firm.  In the very early going, Lenin contemplated the leadership of the new Soviet Union running the “whole of society” like a single firm.  The leadership would impose the precepts of Scientific Management, the “Taylor System”, as expounded in Fred M. Taylor’s Scientific Management (1916).  Everything would be rational, scientific.  No one would own anything, and everyone would be happy.  Best laid plans.

Over the decades the Soviets continuously tweaked their system.  They were always engaged in new reforms.  Reform was nothing that distinguished “Gorbachev and his reform-minded entourage” from every premier and his entourage who had preceded them.

In Soviet Management (1965) Barack Richman suggests that an American executive from an American aerospace/defense firm might find the management of a Soviet enterprise strangely familiar.  Both the American firm and the Soviet enterprise would be operating to serve the demands of a single customer (the government).  Internal processes might be very similar.  The principal difference might be the fact that the Soviet enterprise would have been subject to more direct influence by its one, big customer.  The central authorities could reach in and muck around with the Soviet enterprise’s management.  It could change personnel.  The enterprise really wouldn’t be operating independently of the government.  And that would be by design.

To the question, “Absent exogenous factors, can regimes collapse?” I pose the very formative answer: To the extent we can analogize centralized systems to tightly centralized firms, then, yes, we can expect managers to drive regimes so far into the ground that they can’t be reorganized but rather have to be liquidated.  Alternatively, systems that depend more on free exchange between autonomous firms are less susceptible to system-wide collapse.

Right now, the increasingly centralized regimes that comprise the “West” are trying to induce the collapse of the Mafia regime that runs Russia.  Some observers would go so far as to suggest that the regimes in the West endeavor to “destroy Russia.”  Well short of “destroying Russia,” will they be able to destabilize Putin’s clique of oligarchs?  Might the regimes in the West also destabilize themselves?