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From an economic standpoint Gorbachev's perestroika and democratization was flawed from the beginning. "One does not have to be a Marxist to work out that a market economy, in a western sense, would have heralded the death of Soviet socialism and the power of the communist party- (McCauley 347). Gorbachev needed to find a way to introduce a reform that would gear towards capitalism and away from communism. This presented an immense problem for Gorbachev. The first significant reform took place in 1988. The Law on the Enterprise would give enterprises the freedom to practice market economy tactics. This turned out to be a complete failure. "Prices rose, wages shot up, far outstripping increases in labor productivity. Inflation climbed higher. Along with economic and social discontent came ethnic unrest- (McCauley 347). The Soviet Union was simply not in right state to withstand drastic economic reform. However, as discussed later in this paper, the people demanded change and wanted to move away from a planned economy. Thus, .
"Gorbachev faced a paradox. He understood that he could not single-handedly order the reforms that he wanted. The Soviet Union is too large, the kinds of reforms that must be undertaken too complicated, and the people involved too numerous for all the incentives to come from a central source- (Goldman 20).
Gorbachev was presented with two options, a quick rapid transition or a more slow, drawn out transition. A group of radical economists, led by Gregory Yavlinsky, drafted and presented Gorbachev with a 500-day plan to introduce a market system in the Soviet Union. The Prime Minister Nikolai Ryzhkov was opposed to the fast track approach. He believed the state should retain power with regards to the economy. Gorbachev tried to remain in the middle and proposed the two groups mesh their ideas and work up a comparable solution. "This was akin to trying to mix fire and water or chalk and cheese.