The socialist policies of the Dergue led to a measure of improvement in the social and economic conditions of sections of the Ethiopian masses. However, continuing and even escalating internal conflict, from Eritrea to regional armed opposition in the south and violent factionalism in Addis Ababa, severely weakened the economy and undermined some of the limited achievements made so far.

The Dergue overthrew the imperial régime without an ideology or even a programme, and was readily convened to the 'scientific socialism' of the Marxists in the civilian revolutionary leadership.

The most substantial achievement of the Dergue was its land reform programme, benefited seven million households. In the south, the majority of the peasants were tenants, paying up to half of their produce as rent to largely absentee landlords. In March 1975 the Dergue's land reform decree nationalized all agricultural land without compensation and ordered it to be distributed among the working peasantry.

Transfer of land was prohibited, except by inheritance of possessory rights. A maximum of ten hectares was fixed for individual allotments. Peasant associations were formed to carry out redistribution of land and to administer local affairs. The land reform was less of a boon to the north where most land is held in small blocks under a customary form of tenure; consequently support for the Dergue became less enthusiastic in the north than in the south.

All industry was nationalized at the beginning of 1975, together with financial institutions, insurance companies and supermarkets. Compensation was promised but was not offered. A Declaration on the Economic Policy of Socialist Ethiopia decreed a mixed economy with state ownership of industry, resources and utilities and a private sector in trade, transportation, services and small-scale manufacturing enterprises. Mining, tourism and large-scale construction were to be areas for joint state and private ventures.

Nationalization of large sectors of the economy brought little benefit to the Ethiopian people. Declining production in agriculture and severe food shortages were a result of the channelling of development funds to large-scale capital-intensive State farms and neglect of the peasant sector. Therefore, a boom in the state farm sector and its cash-crop exports, especially coffee, has been offset by starvation even in the countryside. However, unlike the situation prevalent under the imperial regime, relief assistance under the Dergue was well organized. The new regime has also failed to satisfy most of labour's basic demands, including those for a minimum wage and social security legislation. Wages were kept frozen during a period of rapid inflation and food shortages in the towns. Strikes were banned and trade union leaders imprisoned. Inevitably worker opposition went underground.

The working people, however, benefited from increased social services under the Dergue. Literacy campaigns were been organized through local associations. The provision of medical care doubled.

In July 1975 all urban land and extra housing (70 per cent of all dwellings in Addis Ababa) was nationalized. Owners were allowed rights over 500 square metres of land, without right of sale or transfer, save by inheritance. Ownership of housing was limited to a single unit per family. Extra units were nationalized without compensation. Rents were now to be collected by public authorities and reduced according to a graduated scale weighted in favour of lower income groups. Urban dwellers' associations were formed to administer housing and neighbourhood affairs.

The Dergue's performance in government was  affected and its authority challenged by a determined opposition movement organized by radical intelligentsia who refused to accept military rule as a transitional stage to socialism. Supported by worker activists and a highly militant generation of university and secondary school students, the radical civilian elite called for the formation of a 'People's Government'. The Dergue's reaction was to avoid early confrontation by dispersing students and teachers to rural areas on a campaign of peasant political education for 18 months. However, on their return to the towns around Easter 1976 the civilian radicals proved eager recruits for the underground Ethiopian People's Revolutionary, Party (EPRP), which professed Marxism-Leninism as its guiding ideology.

The EPRP's avowed aim was to overthrow the military government; from late 1976 it began a campaign of urban guerilla warfare. A minority among the radicals rallied to the PMAC (Dergue) in the belief it could manipulate it, and formed the All-Ethiopia Socialist Movement or MEISON. The Dergue and MEISON formed an armed militia within the urban associations and special security detachments to combat the EPRP. In the 'Red Terror' the government destroyed the EPRP by summary executions and street massacres of large groups of students.

The Dergue also had to cope with risings organized by counter-revolutionary forces, particularly dispossessed elements of the former ruling classes, who formed the Ethiopian Democratic Union (EDU) which, with the co-operation of the anti-Marxist Sudanese government of General Nimeiri, infiltrated guerillas into the western province of Begemdir in early 1977.

Factional strife in the Dergue did not cease when Lt-Colonel Mengistu became chairman of a largely civilian and powerless council of ministers, and commander of the armed forces. In the middle of 1977 Mengistu turned against MEISON and had many of its leaders killed. In November he executed his second-in-command and potential rival, Colonel Atnafu Abate.

In some ways the ethnicism and cultural chauvinism practised by the imperial regime seriously weakened by the Revolutionary Government. The Dergue proclaimed the equality of all nationalities and cultures in Ethiopia, granted official recognition to Islam, allowed broadcasting and publishing in languages other than English and Amharic, and recognized the right of the Eritreans-to regional autonomy. However, the nationalities policy has collapsed in the face of the continuing Eritrean secessionist rebellion and an outbreak of armed regional opposition in Tigre and the south.

Somali irredentism led to a full-scale war between Ethiopia and Somalia over Ethiopian Ogaden in 1977-8. The Ogaden War was won when the Somali invaders were driven back from Jigjiga with the aid of Soviet weaponry and Cuban troops, ten thousand of whom are still (1988) based in Tatek camp on the outskirts of Addis Ababa. The civil wars and the war of resistance to Somali invasion have taken a heavy toll on the Ethiopian economy.