For several decades the economies of the eastern block countries were operating with a great handicap, in that they were centrally planned and managed. The economies of Eastern Europe and the former Soviet Union were controlled by central bureaucracies, with little or no flexibility allowed at the local level.
This controlled economy served the Soviets and their satellites rather well up to the nineteen eighties. They were able to control not only the means of production, but also people's thoughts and actions. During the eighties, however, they faced challenges like never before. On the one hand they had to improve their information processing technology to keep up with the west. On the other hand, they realized that the information revolution would result in informed citizens who would demand significant improvement in their economic condition. Additionally, they were presented with a dilemma by former president Reagan: accelerate the arms race at the expense of domestic production.
These factors brought about the realization that a tightly controlled economy could no longer remain competitive with the west, whose information technology has been accelerating at a heretofore unseen pace. The Soviet leaders decided that some changes were required. Their half hearted efforts at "perestroika," or re-structuring, however, were insufficient to improve their capability to produce more consumer goods. Strangely, perestroika, coupled with Soviet president Gorbachev's "glasnost," or openness, resulted in the destabilization of the former Soviet Union, and in the eventual ousting of Gorbachev.
Clearly, revolutionary changes were required to force the abandonment of planned economy in favor of a market economy. After the break up of the former Soviet Union, Boris Yeltsin, Russian president, set out to drastically reshape the Russian economy. To accomplish that he could count on very limited help from the west, and no real model to follow, since the other eastern block countries were themselves struggling with their versions of market economies.
