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The Soviet Model and the economic cold war
The Washington Post cautioned:
“…don't look for parades in
to celebrate the anniversary [of Gorbachev’s resignation on December 25th]. There will be no fireworks, no national commemoration of the epochal event of the last half of the 20th century. Moscow
“By contrast, the 100th birthday of the late Leonid Brezhnev last week touched off a wave of nostalgia for the old apparatchik with the bushy eyebrows. Wreaths and flowers were laid at his tomb in
Red Square, conferences were held on his legacy, a street and park were renamed for him. A state television correspondent rhapsodized about how he ‘was quite a hit with the ladies.’ A poll showed that more than 60 percent of Russians saw the Brezhnev era in a positive light compared with 17 percent who did not.”
Under the headline “Nostalgia for
“The tumultuous course that
Russiahas followed ever since [the fall of the ] has generated, perhaps inevitably, a fervent desire among some to recast the past in a rosy hue.” USSR
That “some” is the majority of Russians according to opinion polls. The RFE-RL report continued:
“The shelves of
bookstores are stuffed with more than 500 new books on the life of Josef Stalin; more than half of them are apologist in tone.” Moscow
Leonid Brezhnev at the Moscow Olympics, 1980
's Foreign Intelligence Service (SVR) released a fresh volume of its history, including an analysis of the Soviet collapse. The SVR dismisses the theory that the death of the Russia was historically predetermined. Instead, it depicts the downfall as a chance combination of adverse historical circumstances and the ‘failed policy’ of Gorbachev. USSR
“The study notes efforts by the administration of U.S. President Ronald Reagan and the American intelligence community to weaken the
during the final stages of the Cold War. These efforts included the U.S. Strategic Defense Initiative -- better known as ‘Star Wars’ -- that aimed at exhausting the Soviet economy by setting a new bar in military and defense parity. They also included restrictions of exports of Western hi-tech to USSR Russia, the fall in oil prices, and U.S.support to anti-Soviet operations in Polandand . Afghanistan
“But, in the view of SVR analysts, it was neither Reagan's strategy nor special operations by the CIA that created the crisis in the Soviet system. In the words of the report, it only ‘aggravated’ it.”
Mikhail Gorbachev, the Soviet Union’s last president, had based his policies on the premise that the
The failure of the capitalist reforms to deliver on the promises of economic dynamism and higher living standards (except for an elite minority) was not an experience confined to the former
Consideration of both the achievements of the Soviet economy and of the difficulties which paved the way to its abolition is important not only for Russians making sense of their own history. As neo-liberal capitalism is increasingly challenged in the 21st Century, people searching for an alternative economic model are looking at current and historical examples and finding them problematic. Yugoslavia, whose industries were nationalised but allowed to compete with each other on a market basis, suffered from high unemployment and disparities in regional development; the USA assisted its economy as a counterweight to the USSR, and when US support was withdrawn its ‘market socialism’ could not survive.
When looking at the relevance of the Soviet experience, one has to contend with analyses, both from left and right, which isolate the economic policies followed in a particular country from other factors and attribute success or failure almost completely to the correctness or otherwise of the economic model. Therefore, two closely-related principles must be emphasised:
* the economic structure existing in any country operates within, and its success is dependent on its interaction with, the global economic and political context;
* the economic growth of any country depends on access to production-related knowledge, ie technology, which is largely dependent on interaction with ideas acquired from abroad.
Capitalist development cannot be understood without these factors. The transformation of Western Europe from the seat of Medieval stagnation to the cradle of the industrial revolution depended not only on the physical acquisition of gold from South America and slaves from Africa, but on the importation of the Islamic, Indian and Chinese knowledge which led to the use of modern arithmetic, printing, gunpowder, the compass, cotton spinning machinery and many other advances. The current re-emergence of
Similarly, neither the development nor the problems of the
Illusion or reality?
Critics of the Soviet economic model have to reckon with some stubborn facts. During a succession of five-year plans, the USSR was transformed from a primitive, largely agricultural backwater, albeit one with an avowedly socialist government, into a superpower, second only to the United States in its international political influence, military capability and (without which these would have been impossible) industrial strength. By the 1960s, average life expectancy in the
The anti-Soviet commentators who engage with this difficulty have two main responses: to imply that the
“For most of the twentieth century, central economic planning was regarded as a path to rapid economic growth. It was also seen as a means of avoiding pitfalls of capitalistic development, such as pollution and income inequality.”
Among the reasons for this, he concedes, was that:
“…the Soviet economy was able to produce a sort of growth [my emphasis], which by some measures was spectacular, and was able to sustain itself for nearly seventy years… Industrial output clearly expanded enormously over the course of Soviet history.”
Steele goes on to describe the output of the economy of the
Yet if one takes a visit to the republics of the former
Postage stamp featuring the TU-154. This 1970s plane still dominates post-Soviet airspace
The Washington Post quoted the view of a writer for the ‘independent’ Yezhednevnyy Zhurnal Web site, that:
“Russians were mainly nostalgic for the illusion of stability that Brezhnev provided. ‘People remember that wonderful feeling of not having to worry about anything because it was all decided for you and you had simply to live peacefully, go to work and pick up your wages,’ he wrote. ‘Give the people peace and quiet, immerse them in nirvana and they will celebrate your 100th birthday with pleasure.’”
Why people ought to prefer the genuine, non-illusory stress and insecurity of life under capitalism was not explained.
From shovel to bulldozer
“…when Khrushchev pounded his shoe on the U.N. podium and declared, ‘We will bury you,’ it was an economic rather than a military boast. It is therefore a shock to browse through, say, issues of Foreign Affairs from the mid 1950s through the early 1960s and discover that at least one article a year dealt with the implications of growing Soviet industrial might…
“Illustrative of the tone of discussion was a 1957 article by Calvin B. Hoover. Like many Western economists,
criticized official Soviet statistics, arguing that they exaggerated the true growth rate. Nonetheless, he concluded that Soviet claims of astonishing achievement were fully justified… Hoover
“These views were not considered outlandish at the time. On the contrary, the general image of Soviet central planning was that it might be brutal, and might not do a very good job of providing consumer goods, but that it was very effective at promoting industrial growth.”
The main thrust of Krugman’s article, which was published in 1994, was that the
Krugman argued that this state-led expansion is unsustainable because it is based, not on increasing efficiency (as allegedly occurs in market economies), but on the role of the state in mobilising more ‘inputs’ to add to the production process- more labour, more education, more machinery.
Other economists proffering the same theory but using different terminology claim that state-planned economies can grow ‘extensively’ but not ‘intensively’.
Krugman argues convincingly that there was no magic behind the industrial transformation of the
“The immense Soviet efforts to mobilize economic resources were hardly news. Stalinist planners had moved millions of workers from farms to cities, pushed millions of women into the labor force and millions of men into longer hours, pursued massive programs of education, and above all plowed an ever-growing proportion of the country's industrial output back into the construction of new factories. Still, the big surprise was that once one had taken the effects of these more or less measurable inputs into account, there was nothing left to explain. The most shocking thing about Soviet growth was its comprehensibility.”
Professor Krugman concedes that output per worker increased greatly in the
“Increases in labor productivity, however, are not always caused by the increased efficiency of workers. Labor is only one of a number of inputs; workers may produce more, not because they are better managed or have more technological knowledge, but simply because they have better machinery. A man with a bulldozer can dig a ditch faster than one with only a shovel, but he is not more efficient; he just has more capital to work with…
“Mere increases in inputs, without an increase in the efficiency with which those inputs are used--investing in more machinery and infrastructure--must run into diminishing returns; input-driven growth is inevitably limited.”
This is a useful example which illustrates not only the incoherence of Prof Krugman’s thoughts, but also the fallacy of free-market economics- the idea that the capitalist market releases some special factor which, aside from mere effort, education and machinery, makes everything more ‘efficient’. If (and no doubt this is true) better technological knowledge and better management would make the worker more proficient at using the bulldozer – or even the shovel – to provide better technological knowledge and better management would require the worker and the manager to have additional training; and education, as Krugman has conceded, is an input.
Further, the bulldozer is not simply better than the shovel; it is a more advanced piece of machinery, and to make a bulldozer is a more complex undertaking which requires a higher level of ‘know-how’ than making a shovel. And the bulldozer is not just more capital – a hundred more shovels would have been more capital, but that would not have resulted in any increase in production per worker.
Soviet art celebrated the power of the worker enhanced by technology
Krugman is correct to assert that there is no mystery about economic growth in the
Nevertheless, industrial growth in the
Some analysts have made a strong case that
A British official declared in May 1922:
is entirely ruined, and no trade of considerable moment can be carried on for a good many years to come.” (Quoted by R. Palme Dutt) Russia
The extent of pre-revolutionary
1919: British tanks delivered to the anti-communist forces in Russia
Even under the most free-market of capitalist systems, planning and co-ordination takes place at the levels of the factory and the company – though firms struggle with each other in an anarchic way for the prizes of market dominance and high profits, the losers facing bankruptcy or hostile takeover. The economy of the
“The basic institutions of the Soviet Economic system took shape in the First Five Year Plan (1928/29 – 32). Subsequent modifications were numerous, but not substantial. Basically, the whole economy was run like a single giant corporation – USSR Inc. As corporations go, USSR Inc was of exceptional workforce size and was a conglomerate with the most extreme range of activities, yet it was run in a more centralised way than most.”
Industries in the
The product mix: what to produce and in what proportions;
Who will supply the enterprise, with what and how much;
A labour plan: how many workers and the total wage bill;
Who are the customers and what they should each be provided with;
The prices of inputs and outputs;
An investment plan, for replacing and modernising equipment.
Professor Hanson’s analogy has some validity – these are not too different from the kind of instructions which the head office of a capitalist industrial firm issues to its factories and offices. But as distinct from capitalism, the relationships between the enterprises and between the sectors of the economy were co-ordinated by agencies of the state.
The phrase ‘central planning’ can give rise to the impression that everything was determined at the top. In fact the centre determined the overall proportions for the growth of different sectors of the economy as well as targets for key products, with many other decisions delegated and decentralised to ministry and enterprise level.
It is important to note that although the Soviet system reduced both money and the process of buying and selling to subordinate positions, it did not abolish them. The communist party did not claim that the stage of full communism, in which money and markets would no longer exist, had yet been achieved.
Workers received wages for their work, comprised of piece rates or time rates dependent on occupation and bonuses for fulfilling targets, and they purchased consumer goods with this money; but consumption of most services and many goods was not regulated by price. As well as free education and healthcare, housing and many other services were charged at nominal fees; food in the factory canteens and in later decades in the shops was heavily subsidised.
Within the productive economy money circulated in two main ways. The collective farms sold their products to the state at set prices and distributed the proceeds to the members of the collective. Industrial products also had monetary values assigned to them, and banking and accounting systems were used both to control the movement of goods between enterprises and to incentivise efficient production.
A limited amount of individual private enterprise was permitted under socialism. As well as the land they worked collectively, farmers in the
However, for the majority of economic operations, material resources were assigned directly to and between enterprises rather than being bought and sold through a market. The planning process involved communication and negotiation with the country’s communist party leadership and with the workers and wider population (often taking the form of mass meetings); with the planners and ministry officials using their technical expertise to assess the estimates and requests provided by enterprise managers.
During the 1930s, and again in the 1950s following reconstruction from the appalling destruction of World War Two, the results obtained while using this system were phenomenal.
As Paul Krugman conceded in his Foreign Affairs article:
“…there was once a time when the Soviet economy, far from being a byword for the failure of socialism, was one of the wonders of the world… the general image of Soviet central planning was that it might be brutal, and might not do a very good job of providing consumer goods, but that it was very effective at promoting industrial growth.”
But there was a key factor in the long period of Soviet economic dynamism which is missing from most of the analyses of the phenomenon.
The planning and management of industrial growth can be conceived of as bringing together three sources of increasing wealth: human labour power, natural resources, and technology. In the
The Soviet state therefore organised and funded a programme to gain access to the world’s most advanced technology, which was held in the
As a few perceptive observers have noted, both Lenin and Stalin were admirers of the ‘American way’ on matters of organisation.
“American efficiency is that indomitable force which neither knows nor recognises obstacles; which with its business-like perseverance brushes aside all obstacles; which continues at a task once started until it is finished, even if it is a minor task; and without which serious constructive work is inconceivable.”
US firms and US-trained experts had the right kind of attitude for participation in the immense project of modernising the
The other factor was that the
Soviet emissaries were sent to buy machinery from abroad, purchase licenses to make machinery of foreign design, and to hire firms and individual experts from the advanced capitalist countries. According to Professor Steven Kotkin of
“The list of capitalist firms which built Stalin's industrialized
Soviet Unionis a who's who of the most famous and advanced capitalist firms of the 20th Century. It includes not only American ones, but Italians and Germans, etcetera. Later on they would be embarrassed by this collaboration and remove this episode from their company histories, which were produced in the Cold War period after 1945.”
A fall in the world price of grain (the
“If they would sell , for example, an entire steel plant from the blast furnaces all the way through to the finished rolled steel and the rails that were produced, it was often the case that the Soviets would pay only for one plant. Then, they would take the drawings and the technology, which was for that one plant, and reproduce it somewhere else, having paid only for one. So, they would get three or four or five steel plants for the price of one. This was, of course, a violation of their contracts, but the firms weren't selling to anybody else. Moreover, the American firm was afraid the German firm would get the contract and the Soviets were playing off one capitalist firm against another. So, they had to look the other way when there was this kind of violation of the contract of reproducing the drawings for factories in other places that hadn't been properly paid for.”
Among the many Western firms whose expertise was drawn on by the
“It is very astonishing that there is no mention of Henry Ford’s involvement in the industrialisation of the
in the late 1920s and early 1930s in Robert Lacey’s biography in 1986…” USSR
In 1928 a delegation of Soviet engineers visited the Ford plant in
The GAZ M-1 automobile
“As a result, GAZ M-1, like all the other following models of GAZ vehicles, turned out to be durable, robust and easy to service; GAZ M-1 was the first Soviet car with automatic ignition and back-forward adjustable front seats. Most M-1 cars were on government service and it was almost the only officer car at the beginning of World War II.”
The Soviet Union was also able to make use of the services of Albert Kahn Inc, the
“The impact of Kahn’s work reached far outside the
During the Great Depression, Kahn’s firm assisted the Soviet government in its massive industrialization effort. Between 1930 and 1932, the firm’s office in U.S. helped train more than 1,000 engineers and built 521 factories.” Moscow
Thousands of American, German and other foreign experts came to the
Thus the Soviet communists, while part of a worldwide political movement which aimed to replace capitalism with socialism, were able to engage with the biggest capitalist firms and with foreign specialists who had learned their skills working for those firms, in order to acquire the knowledge they required for industrial development. They saw that technology, not as tainted with its Western origins, but as the common heritage of humanity. They organised not just the import of technology but the assimilation and adaptation of foreign knowledge as the basis for making their own innovations.
Dneprostroi dam under construction, 1934
During the Second World War, some technology transfers from the
The Lend Lease arrangement with the Soviet Union should not be interpreted as an act of generosity on the part of the
“What happened immediately after V-E Day was a decision that lend-lease to Russia should be stopped ‘where physically possible’ -- that was the term used -- except where the goods were identifiable in connection with the prospective entry of the USSR into the war with Japan…”
The outcome of the war subsequently provided the Soviet economy with advanced German technology to which the USSR had previously not had access, and which proved to be of great assistance in recovering from the war and further modernising both civilian and military industries. This is crucial in understanding the leap in productivity which took place in the
As part of the war reparations agreed between the World War Two allies, whole factories in the East of Germany were disassembled and transported to the
Among the many other Soviet industrial sectors which were able to upgrade their production using German knowledge was the optical industry. An article in the Zeiss Historica Journal records:
“As early as November of 1945, the Russians stated that they wanted Carl Zeiss (not Zeiss Ikon) to provide them with sufficient knowledge, technical drawings, and instruction for the Russians in
. The production machinery and design process were to be designed to produce 5,000 cameras per month. Kiev
“…The Russians did take a good number of Carl Zeiss and Zeiss Ikon technicians and managers with them to assure the startup of the new operation… The Carl Zeiss records also indicate that the Russians wanted other products as well. There was the movement of Carl Zeiss microscope facilities to the area near
. This new firm named ‘LOMO’ is active in microscope manufacture to the present day. I know that famous Zeiss scientist Dr. A. Sonnefeld spent 5 years in St. Petersburg building a facility with regard to Astronomy. The Zeiss Ikon specialist in photocells, Paul Görlich, also spent five years in Russia Russiaand returned to work in Jenaand not in the photographic kombinats. Clearly, there were Russian binocular manufacturing locations that were aided by the reparations from Carl Zeiss…” Dresden
In the late 1940s as in the 1930s, Soviet technicians did not merely copy and integrate this foreign knowledge- they learned from, adapted and developed it, providing a platform for sustained improvements in productivity and product range and quality. Production per worker in the USSR increased by an average of 6% per year during the decade of the 1950s – however, this could not be sustained in the absence of continued intensive contact with the production methods of the more advanced industrial countries.
From the late 1940s onward, the
“…we began to withhold from the Russians certain machinery and equipment that they wanted to buy commercially from us, and we began a discriminatory export licensing policy for security reasons in the summer of 1948 -- I believe it was the summer. This was really in violation of our trade agreement with the Russians, but it was necessary for security reasons. I then became very active in that program in the State Department of keeping things away from the Russians. I worked at that in '48 and '49 and '50 and on through the Truman administration.”
The justification was that, to quote the US Joint Chiefs of Staff:
“It would be undesirable to assist, directly or indirectly, either the military or the economic potential of the
and her satellites as they are our most probable enemies.” USSR
Humanitarian considerations did not stand in the way of this policy. Frank Cain in an article in the Journal of Contemporary History notes that:
“The pharmaceutical manufacturing firm, Merck & Co. of New York became aware of this growing opposition to trade with the Soviets, and after discussions with the State Department in November 1947 the corporation discontinued its arrangements for exporting a penicillin and streptomycin manufacturing plant to the
Professor Hanson, in his book 'The Rise and Fall of the Soviet Economy', describes the desperate shortage of streptomycin (then a newly-developed antibiotic which was used for treating TB sufferers) in the USSR in the early 1950s, implying that either the planning system or the priorities of the Soviet leadership were at fault. Had he lifted the blinkers of his anti-Soviet prejudice and researched the issue, he might have found a different target for the blame.
Although technology transfers to the socialist countries were strictly forbidden, the
Kenneth I. Juster, the
“In effect, CoCom’s principal objective was to serve as the de-facto economic arm of NATO, and impede the Communist Bloc’s ability to develop its defense industrial base. Over the years, the scope of CoCom controls was quite expansive, reaching a wide range of commodities that were readily available over the counter at retail outlets. The fundamental supposition was that the export of any controlled item to proscribed destinations should be considered as an export for a hostile military use – in other words, that any export could and would be diverted to support hostile military operations.
“These stringent measures were, in fact, effective for many years because the CoCom members possessed a virtual monopoly on the technologies that they controlled.”
In addition, the
Kenneth I. Juster: 'stringent measures were effective'
The vulnerability of the
“Our estimates suggest substantial, but not perfect, sharing of ideas. Relative to the adoption of their own potentially useful ideas, countries generally adopt from one-half to three fourths of those generated abroad. Another way to quantify the extent of diffusion [of technology] is to decompose each country’s growth into the contribution made by its own and each others’ innovation. We find that the
United Statesand Japantogether contribute two-thirds or more to growth in each of the five countries, and only the derives most of its growth from its own innovation.” United States
Following the emergence of political disagreements between the
Assembly line at the Popov radio factory, Riga, 1959
These included the imports of British equipment to upgrade the chemical industry in the early 1960s, the contract with Fiat to build the Togliatti car factory in the late 1960s, the participation of several Western firms in the construction of the Kama River truck plant in the 1970s; the USSR also succeeded in purchasing the turbines for the gas pipeline from Siberia to Western Europe, which were made by a British firm, John Brown Engineering.
But with few exceptions the processes the socialist countries acquired through trade with the capitalist bloc did not embody cutting-edge technology, and imports were delayed by the process of scrutiny by CoCom and diplomatic pressure by the
Although the usually publicly-stated reason for the sanctions against the
“It was always difficult for economists to square the backward state of the Soviet economy with the military prowess of the USSR… how could its defence effort come anywhere near matching that of its opposing superpower? This was something that was endlessly debated among Western policy analysts during the Cold War.”
This was less of a paradox than it appeared. In the context of the Cold War sanctions,
By the mid 1970s the Soviet Union had reached a position of approximate military parity with the
It is possible to speculate on what the
In Western accounts of the changes in the
Conditions for the millions who moved to work in the cities and the new industrial centres were very basic, particularly in the early years of planned industrialisation. It was usual for two or more families to share a small flat, and many workers were accommodated in barrack-like hostels. Wage increases were wiped out by inflation.
But by the late 1930s a major improvement in the material standard of living in the urban areas of the
“The dominant interpretation of Soviet industrialisation maintains that the average standard of living fell in the 1930s. However, when the most recent evidence and theory are used to measure per capita consumption, they show that it increased 22% between 1928 and 1938. This was exceptionally rapid growth – not abject failure.”
Allen adds the caveat that this rise in material prosperity does not necessarily prove that the quality of life in the USSR was getting better, because of the negative aspects of life in the Soviet Union at the time – for instance the high level of political repression. However, the picture is not balanced unless the changes in the cultural conditions of the people are also considered. William Mandel, the son of an American engineer working in
“After some months of private tutoring in the Russian language, I enrolled at the University to study biochemistry. My fellow students were, with one exception, the children of labouring people and peasants who would never have dreamed of this opportunity under the empire. They remembered the old days, for they were much older than American freshmen. They had almost all worked for years before being sent to special prep schools to prepare them for college.
“After a long, hard day at the University they would pile into open trucks, go to construction sites, and teach illiterate working men and women how to read and write. The working people were grateful for this. They would put in extra hours, quite voluntarily, because to them socialism was not a theory but a very practical thing: steady jobs, education, opportunity for advancement, free doctors, open doors for women and minorities. Thirty years later, I visited one of the plants that had been under construction in 1932 and found that the management consisted of some of the same people my fellow students had taught their alphabet... With immense modesty, and the enormous psychological burden of their knowledge of
’s age-old backwardness they said to me: ‘And so we are beginning to have some respect for ourselves.’” Russia
Between 1926 and 1939 the overall literacy rate in the
The remarkable nature of this achievement can be seen from the fact that even by the year 2000, the overall world literacy rate according to UNESCO was 79.7%, including 60.1% in the Arab countries and 55.3% in South and
The growth in material living standards in the
Soviet real incomes and consumption levels (as a percentage of base year 1937)
Per capita real income* Per capita private consumption**
1937 100 100
1940 86 96
1944 - 66
1950 97 114
1952 113 -
1955 135 159
* Derived from Jasny
** Derived from Chapman
From the 1950s onwards a huge housing building programme took place; the rate of state and state-assisted construction increased from 127.1 (million square metres of living space) to 394.4 between 1946-50 and 1961-66. House construction on the collective farms also “more than doubled… as incomes in the countryside improved” (Hanson p64) Hanson is compelled to concede that the improvement in housing was “very great indeed”.
The diet of Soviet citizens also changed; the traditional reliance on bread and potatoes was supplemented by the greatly increased availability of dairy products, eggs, fish and meat. Though car ownership remained uncommon, ownership of household consumer durables rose steadily. The following figures are from the Soviet statistical service:
Material prosperity indicators,
1965 1970 1975 1980 1985
per capita 38kg* 47.5kg 56.1kg 57.6kg 61.7kg
100 families 11 32 61 86 91
TV sets per
100 families 24 51` 74 85 97
thousands) 6,399 10,987 17,167 23,707 31,100
Health and mortality
Changes in the mortality and physical growth of the population are also illuminating. The factors contributing to these include diet and lifestyle, preventative health programmes and the availability of medical treatments. Research papers on the mortality and average heights of children and adults, including those published by authors who are hostile to the Soviet socialist system, show a similar pattern: steady improvements, particularly after World War 2, a decline in the 1970s, and resumed improvement in the 1980s.
The worsening overall health picture in the 1970s coincided with improvements in the respect of the control of infectious diseases and treatments for other conditions – for instance, age-standardised death rates from diabetes in
In the 1960s and ‘70s, steep increases in the consumption of animal fats, alcohol and, probably most significantly, cigarettes, took place in the
The prevalence of smoking is the most likely main cause of the increased death rate among infants as well as adults in the 1970s. Maternal smoking is the main factor which predicts both low birth weight and sudden infant death syndrome, and research also indicates that smoking by the father is likely to cause infant health problems even if the mother is a non-smoker.
The ‘stagnation period’
The Soviet rate of growth in industrial productivity per worker, although still high in comparison with the
Rand Corporation analyst Thomas W. Wolfe, writing for the Royal Institute of International Affairs (Chatham House), noted in 1971:
“Not only had the [Soviet] economy’s growth rate begun to decline again as measures to increase labour productivity and the introduction of new technology fell short of expectations, but the perennial problem of competition for resources remained as intractable as ever. Basically, three pressing sets of requirements competed for priority: (i) consumer needs; (ii) military and defence industry claims; (iii) overall economic growth. In making trade-offs among these competing categories, the regime apparently chose to put priority upon responding to long-neglected consumer demands and upon strengthening the Soviet military posture, but at the expense of hoped-for high rates of growth-oriented investment.”
Noting that the Soviet leadership was “concerned over lagging non-defence technology in the
“…the slowdown in economic performance during 1968-69 supports the thesis that the Soviet economy is hurting from the large military programmes of the last few years.”
Something had to give. Any economy will show strains if higher demands are made on it while allocations for investment are reduced. This point was not lost on US administrations, which from the late 1970s onwards pursued a policy of ‘spending the USSR into the ground’ by continual increases in military spending which the Soviet leadership felt it had to match. The
The key to understanding the gradual build-up of problems in the
After the destruction of the Soviet Union, some US politicians and pro-capitalist commentators celebrated the success of the overall strategy of ‘containment’ of communism; some of them have even spoken with pride of the negative effects on the Soviet economy of the big rises in military spending which were initiated by the USA from the late 1970s. But, because their interest lies in proving that socialism as a system must inevitably fail, the importance of the CoCom embargo and other trade restrictions against the socialist countries is hardly acknowledged. Where the issue of the economic isolation of the socialist bloc is mentioned in public, two distortions are introduced – it is alleged that this isolation was self-imposed, and also that it harmed the socialist industries by shielding them from the allegedly positive effects of competition. Condoleezza Rice espoused these claims in a Foreign Affairs article in 2000:
Soviet Unionwas more than just a traditional global competitor; it strove to lead a universal socialist alternative to markets and democracy. The Soviet Unionquarantined itself and many often-unwitting captives and clients from the rigors of international capitalism. In the end, it sowed the seeds of its own destruction, becoming in isolation an economic and technological dinosaur.”
In seeking to counter the
Although the overall increase in output of the Soviet economy had slowed down from the very high rates achieved in the 1950s, it is misleading to describe the decade before the promotion of Mikhail Gorbachev to General Secretary of the Communist Party of the
BAM construction workers entertained during break time
Year Soviet NMP as a proportion of US NMP
[Source: Narkhoz, compiled by Hanson p126]
Because of the greater share of production used on defence in the USSR, and the non-inclusion in these figures of earnings from commercial services and profits from international operations which the USA uses to purchase goods from abroad, these statistics do not mean that the average Soviet household achieved two-thirds of the material prosperity of the average US household. In the
What the figures do show is that the Soviet effort to catch up with the
Other international factors added to the creeping demoralisation in the Soviet Communist Party. There were no signs of socialist revolution in the advanced capitalist countries, and the revolutionary movements in the Third World – for instance in
Nevertheless, the crisis which led to the catastrophic break-up of the
Gorbachev was elected General Secretary by the Soviet Communist Party Central Committee in 1985, as a leader who claimed that a breakthrough was possible. He promised a renewal of socialism, not a return to capitalism. The first reforms to have a major impact on the economic system came into effect in 1988; they encompassed much greater independence of enterprises from Gosplan and the ministries; the reduction of state control over foreign trade; and the right to set up capitalist firms (the latter were misleadingly referred to as co-operatives) including in the banking sector. State enterprises were allowed to set up associated private businesses, which unlike the state-owned firms, were able to set their own prices.
This was the end of meaningful central control of the economy. Although industrial output did not decline at this stage, inflation and shortages grew as wages rose much faster than production, the process of asset-stripping began as goods and funds were siphoned away from state-owned enterprises, and a class of wealthy people associated with the new private banking sector and mafia-type activity began to arise. Demands for full-scale privatisation were voiced and gathered momentum.
Time cover, 1988
A not-dissimilar pattern emerged in the break-up of the
“First, local, regional and republic Party bosses found that they had to cultivate local power bases… As speech became freer, nationalist sentiments surfaced, and there were the beginnings of nationalist movements: at first in the Baltic States, then in
Ukraineand . To outflank this local competition, republic Party bosses turned nationalist… The crunch came when Russian politicians, led by Boris Yeltsin, began to see Georgia Russiaas a rival power-base to the Union…
“The second effect was that many middle-level and senior officials, if they had effective control of useful assets, began to see their way clear to doing very nicely out of them: usually by some form of asset-stripping.”
The eventual abolition of the Soviet Union took place despite a referendum in March 1991, in which 78% of the people, on a turnout of over 75%, voted for the retention of the
By 1999, the output of the Russian economy had fallen to 57% of its 1990 level.
Output of Selected Branches of Industry in
(1990 = 100)
Total Industry 66
Electric power 77
Oil extraction 94
Oil refining 70
Ferrous metallurgy 79
Non-ferrous metallurgy 80
Chemicals and petrochemicals 67
Machine building 54
Wood and paper 48
Building materials 42
Light industry 15
Source: Goskomstat, 2004, Table 14.3.
Citing these statistics, David M. Kotz of
“From the diversified, highly industrialized economy it had in 1990,
has regressed to an economy that now centers around the extraction, and to some extent the initial processing, of natural materials, for export to the world market.” Russia
The figures above refute two criticisms of the Soviet economy which were widely accepted at the time – that the collective farming system was inefficient and unproductive, and that the planning system prioritised heavy industry at the expense of light industry (with the alleged result of a shortage of consumer goods). The productivity of capitalist agriculture in
Accompanying this destruction of the productive economy was a catastrophic upsurge in poverty, unemployment, disease and death. Average male life expectancy fell from 64 to 58.
Of course, the transition in
The hopes of socialists in the 20th Century, that the Soviet model of development could overcome all obstacles and out-compete a technologically superior bloc of advanced capitalist nations, were dashed. But the Soviet experience, in both its achievements and in the difficulties which were encountered, remains as a valuable resource for those who are serious about building an alternative to the capitalist system.
'Be Proud of our Beautiful Motherland' (Soviet Poster)
15 years later: Which Way Did It Go?
Charles N Steele, The Soviet experiment: lessons for development?
Paul Krugman, The Myth of Asia's Miracle, Foreign Affairs http://www.foreignaffairs.org/19941101faessay5151/paul-krugman/the-myth-of-asia-s-miracle.html
Philip Hanson, The Rise and Fall of the Soviet Economy, Longman, 2003
R. Palme Dutt, World Politics 1918-1936, Gollancz 1936
Literacy and life expectancy: http://www.ncsall.net/?id=576
Joseph Stalin, Foundations of Leninism, International Publishers, 1939
Stephen Kotkin, Yanks for Stalin (interview transcript)
Jean-Jacques Chanaron, Ford in the
Albert Kahn, corporate history: http://www.albertkahn.com/AKA%20History%205-05.pdf.
Willis G Armstrong, oral history: http://www.trumanlibrary.org/oralhist/armstron.htm
Opel, corporate history: http://www.opel.com/corporate/3/322.html
Larry Gubaz, After
Frank Cain, Computers and the Cold War:
Kenneth I. Juster, keynote address to the conference of the U.S.-Taiwan Business Council and the Fabless Semiconductor Association, http://www.bis.doc.gov/news/2003/taiwankeynote.htm
John Keaton and Samuel Kortum, International technology diffusion: theory and measurement, International Economic Review, Vol 40, No.3, August 1999
Robert C Allen, The standard of living in the Soviet Union 1928-40, 1995
William Mandel, A New Look at
World literacy rates: http://www.literacyonline.org/products/wagner_kozma.pdf
Changing average height in the
Diabetes in the
Articles on smoking in the
Thomas W. Wolfe, The Soviet Union and SALT: the influence of economic considerations, The World Today, April 1971
Condoleezza Rice, Campaign 2000: Promoting the national interest, Foreign Affairs http://www.foreignaffairs.org/20000101faessay5/condoleezza-rice/campaign-2000-promoting-the-national-interest.html
Soviet production statistics and material prosperity indicators: Narkoz http://www.marxists.org/history/ussr/government/economics/statistics/ind-out.htm#1980s
Transition Report, 2000. European Bank for Reconstruction and Development http://demography.anu.edu.au/Publications/ConferencePapers/IUSSP2001/TablesPhilipov.doc
James Petras, Capitalism versus socialism: The great debate revisited http://www.globalresearch.ca/index.php?context=viewArticle&code=PET20040628&articleId=780
David M. Kotz, The role of the state in economic transformation: comparing the experiences of