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Wednesday, 23rd April 2014

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The Soviet Model and the economic cold war

The way that Russia marked the 15th Anniversary of the end of the USSR, the final events of which took place between the 8th and 31st of December 1991, has caused consternation in the Western media.

The Washington Post cautioned:

“…don't look for parades in Moscow 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.

“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 USSR increases”, the US government foreign broadcasting service Radio Free Europe –Radio Liberty complained:

“The tumultuous course that Russia has followed ever since [the fall of the USSR] has generated, perhaps inevitably, a fervent desire among some to recast the past in a rosy hue.”

That “some” is the majority of Russians according to opinion polls. The RFE-RL report continued:

“The shelves of Moscow bookstores are stuffed with more than 500 new books on the life of Josef Stalin; more than half of them are apologist in tone.”

Leonid Brezhnev at the Moscow Olympics, 1980
RFE-RL also noted a new assessment of the causes of the end of the Soviet Union:

“In 2006, Russia'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 USSR was historically predetermined. Instead, it depicts the downfall as a chance combination of adverse historical circumstances and the ‘failed policy’ of Gorbachev.

“The study notes efforts by the administration of U.S. President Ronald Reagan and the American intelligence community to weaken the USSR 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 Russia, the fall in oil prices, and U.S. support to anti-Soviet operations in Poland and 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 USSR’s economic difficulties – which he referred to as ‘stagnation’ – were caused by the Soviet Union’s socialist economic model: universal public ownership and the central planning of production. But as this system was dismantled and replaced by privatisation and the dominance of market forces, Russia and the other republics of the former USSR went into catastrophic industrial and social decline, which continued throughout the 1990s. 

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 USSR and other ex-socialist states.  The majority of South American countries, for example, underwent a process of de-industrialisation and mass impoverishment during the neo-liberal 1980s and 1990s, an experience which is fuelling the current movements on that continent for a turn towards socialism.

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.  China, with its mixture of state and private investment, is becoming the industrial workshop of the world, importing production technology and energy, and exporting cheap manufactured goods - at the price of rising inequality, the impoverishment of the scores of millions who cannot find steady work in foreign or state-owned firms, and environmental degradation.  Cuba, which has retained the main elements of its centrally-planned economic model, suffered badly in the early and mid 1990s, but is now growing strongly as it extends trade and investment links with Latin America and China.

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 China as a great power is dependent on a massive two-way transfer: of Western technology into China, and of goods cheaply manufactured by relatively low-paid labour from China to the West.

Similarly, neither the development nor the problems of the Soviet Union’s socialist industries are comprehensible purely by looking at the ‘Soviet model’, its principles and internal processes. 

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 USSR had doubled, the Soviet Union had increased its literacy rate from less than 40% to 98.5% and was educating more higher education students per capita than Britain and West Germany.   The USSR was even sending regular manned flights into space.

The anti-Soviet commentators who engage with this difficulty have two main responses: to imply that the USSR’s achievements were irrelevant or somehow illusory, and/or, to argue there was an intrinsic flaw within the Soviet system which made further progress impossible.  Dr Charles N. Steele, a right-wing author from the USA, notes how influential the Soviet economic model was during the period of its operation:

“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 Soviet Union as ‘apparent economic performance’ as if the goods which were produced or the buildings and infrastructure which were constructed had a doubtful or illegitimate existence.

Yet if one takes a visit to the republics of the former USSR, especially if one goes outside the tourist areas, the end products of this ‘apparent’ performance still seem real enough.  A journey by mass transport usually involves locomotives, trams, buses, urban metro systems, airports and even aircraft made before 1989.  The pylons carrying electricity into people’s homes and the power stations generating that electricity were erected in the same period.  A high proportion of the flats and houses where people now live were built in the 1960s, 1970s and 1980s, providing hot and cold running water, indoor bathrooms and central heating for the first time for millions of families.  The homes of many people are still equipped with the durable consumer products of the socialist era – locally-made furniture, carpets, refrigerators, TV sets.  The majority of schools, universities, theatres and hospitals were built under the socialist system.

Postage stamp featuring the TU-154. This 1970s plane still dominates post-Soviet  airspace
Another ‘illusion’ which the Soviet model was able to sustain- but which vanished when the system was abandoned -  was that of economic security.  Unemployment was almost zero; workers could retire between 50 and 60 on a reasonable pension, and a range of provisions including housing, heating, water, electricity, education at all levels, public transport, health services, sports and high quality cultural activities, were free or at nominal cost to Soviet citizens.

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

Former Clinton advisor Professor Paul Krugman does not express doubt about the reality of Soviet economic achievements.  In a famous article in Foreign Affairs magazine entitled ‘The myth of Asia’s miracle’, he noted that:

“…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, Hoover criticized official Soviet statistics, arguing that they exaggerated the true growth rate. Nonetheless, he concluded that Soviet claims of astonishing achievement were fully justified…

“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 USA should not follow the example of certain Asian economies (the example he used was Singapore, which he described as “the economic twin of Stalin’s Soviet Union”) in using state planning to produce rapid economic growth.

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 USSR:

“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 USSR. However:

“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 USSR.  But economic growth and competitiveness under capitalism is also ‘shockingly comprehensible’.  Economists like to invoke concepts of efficiency and innovation, arising somehow from the pressures and freedoms of the free market. But collaborative work involving huge inputs, mainly the investment of resources by large organisations, produces the bulk of new production methods and genuinely innovative products.  Beyond that, as the recent economic progress of the USA exemplifies, capitalist societies improve ‘efficiency’ by increasing working hours, enlarging the labour force for example through bringing more women into employment and hiring immigrant workers, and reducing such costs as heath insurance and pension benefits.

Nevertheless, industrial growth in the USSR did slow down after the 1950s, a factor which contributed to the vulnerability of the Soviet political system.  When the international context is considered, both the fast rates of Soviet industrial modernisation in the 1930s and from 1945 through the 1950s, and the subsequent slowing down of modernisation, are readily comprehensible.


Some analysts have made a strong case that Russia and its associated republics in the early 1920s was the wrong place and the wrong time from which to try to construct an alternative to the capitalist system.  The vast majority of the population were peasants who used primitive tools to eke out a living.  Such industry as there was before the revolution had been largely foreign-owned – in any case it had since been mostly destroyed. Three years of civil war, in which the anti-government side was not only armed and financed by foreign powers but was supported by expeditionary forces including British, German, French, US and Japanese troops, had left famine and epidemics of disease in its wake.

A British official declared in May 1922:

Russia 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)

The extent of pre-revolutionary Russia’s backwardness in human – not merely industrial - development should not be underestimated.  Its 70% adult illiteracy in the early 20th Century can be compared to the 5% found by the US census of 1910 and to estimates of under 10% for Japan.   Russian life expectancy also lagged badly. Around the turn of the century (1896) it was 30.9 for men and 33 for women, compared to 35.7 and 37.2 in Japan and 46.3 and 48.3 in the USA (in 1900). These gaps in health and culture were serious obstacles to be overcome in the building of a modern economy.

1919: British tanks delivered to the anti-communist forces in Russia
The aim of the Communist Party of the Soviet Union from the 1920s onwards was economic and political: to overcome underdevelopment and to create socialism, which was considered to be the first stage of communist society.  It was with both these aspects in mind that the Soviet communists developed a system in which resources were allocated on the basis of a unified plan, rather than by market forces. 

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 USSR has been likened to the operations of a single firm, as by Professor Philip Hanson:

“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 Soviet Union were run directly by government ministries on the basis of overall plans developed by the state planning commission, known as Gosplan.  According to Hanson, the instructions to each enterprise during Stalin’s leadership included guidelines or directions on a range of matters including:- 

The product mix: what to produce and in what proportions;

Output targets;

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 USSR had their own small family allotments and kept their own animals; they sold the surplus produce from these at farmers markets in the towns and cities. 

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.

Technology transfer

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 Soviet Union, ample reserves of the first two of these existed within the country.  Millions of workers would migrate from the countryside to build and staff the new industries, and as a result of the mechanisation of farming, the reduced numbers still employed in agriculture could still feed the country.  The USSR was abundant in the mineral resources required for industrialisation, including huge quantities of coal, oil and iron ore – if only they could be got out of the ground.    The limiting factor was the ingredient which the Soviet Union could not find mainly from within its own borders: up-to-date production knowledge and the physical embodiment of that knowledge in modern plant and machinery – in other words, technology. 

The Soviet state therefore organised and funded a programme to gain access to the world’s most advanced technology, which was held in the USA and Western Europe.  The reasons for the priority given by Soviet leaders to acquiring production equipment and knowledge specifically from the USA is not generally well understood, and particularly in light of later history deserves some consideration.

As a few perceptive observers have noted, both Lenin and Stalin were admirers of the ‘American way’ on matters of organisation.  US history had freed its culture from some of the feudal and narrow-minded habits which still plagued the European states, and in their colonisation and industrialisation of the vast North American continent, an approach had developed which Stalin described in his book 'Foundations of Leninism':  

“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 USSR.  But there were two more prosaic factors of even greater importance.  The most obvious one is that, since the late 19th Century, the USA had taken over from Britain as the world’s leader in advanced production methods, and the Soviet communists wished to learn from and apply the latest technology. 

The other factor was that the USA was the only developed nation which was comparable with the Soviet Union in population size, land mass and the availability of energy and other natural resources.  Thus the pattern of application of technology in the USA would have greater relevance to the USSR than that in any other country. 

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 Princeton University:

“The list of capitalist firms which built Stalin's industrialized Soviet Union is 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 USSR’s biggest export at the time) consequent on the capitalist economic crisis of the early 1930s put the Soviet Union at a disadvantage in international trade; but this was balanced by the reduced opportunities for Western firms following the crash, which made the USSR a very valuable customer.  Operating as a single large entity rather than a collection of competing companies allowed Soviet industry to negotiate from a relatively strong position:

“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 USSR was Ford, a firm synonymous with the invention of the moving assembly line and mass production.  Jean Jacques Chanaron of Lyons Lumiere University notes with irony:

“It is very astonishing that there is no mention of Henry Ford’s involvement in the industrialisation of the USSR in the late 1920s and early 1930s in Robert Lacey’s biography in 1986…”

In 1928 a delegation of Soviet engineers visited the Ford plant in Detroit; soon afterwards the Soviet Government approved a plan to construct what would become the Gorky Automotive Works (GAZ).  This inaugurated a fruitful international collaboration.

The GAZ M-1 automobile
Like the other joint ventures between the Soviet Union and foreign companies, GAZ and its products were the property of the USSR.  Ford had the status of a contractor, not an owner.  Furthermore, the Soviet engineers at Nizhny Novgorod did not merely reproduce the Ford vehicles; after learning from the specialists sent to Russia by FMC and gaining experience in building cars and trucks, they developed a series of new models more suited to local conditions; one of these was the M-1 automobile.  This was significantly modified from the US design, with changes to the engine, chassis and wheels to suit the rougher local conditions. Chanaron remarks:

“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 USA’s most prominent industrial architecture firm.  Unlike some other companies, the firm does not conceal its role in the emergence of the USSR as an industrial power.  The company’s official history records:

“The impact of Kahn’s work reached far outside the U.S. 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 Moscow helped train more than 1,000 engineers and built 521 factories.”

Thousands of American, German and other foreign experts came to the USSR to live and work in the early 1930s, designing and assisting in the construction and operation of infrastructure projects, mines, steelworks and factories.  Among these was Colonel Hugh L. Cooper, the famous US dam builder, who personally supervised the construction of the largest hydroelectric installation in the world at Dneprostroi in the Ukraine.

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
It must be emphasised that the transfer of modern technology which took place chiefly from the USA and Germany to the USSR between 1928 and 1941 was trade, not aid; it was paid for by the export of grain, minerals and other basic commodities.  Nor was there anything unusual at that time about a firm commercially supplying a nation which was in political disagreement with the government of the country where that firm is based.  For example, most of the machine tools and parts bought by the Mitsubishi Aircraft Company between 1936 and 1940 had been supplied by US firms; and US-owned companies were active in Germany up to and even during World War 2.  Among these were General Motors’ subsidiary, Opel, which produced vehicles in Germany including for the Nazi military, and continued to do so during the war under German government direction.

Technological reparations

During the Second World War, some technology transfers from the USA to the Soviet Union continued by means of the Lend Lease programme, by which the US supplied its allies with essential material for the conflict.  Although the USSR received less than a quarter in value of the supplies which were provided to Britain, these items were nevertheless significant and it is notable that they included industrial equipment as well as food and weaponry. 

The Lend Lease arrangement with the Soviet Union should not be interpreted as an act of generosity on the part of the US authorities; for the greater part of the war it was a substitute for the involvement by US troops in the key arena of fighting in Europe.  Although the USSR was devastated and Japan was still far from beaten, most of the US provision to its Soviet ally was abruptly terminated when victory was declared in Europe.  A former US State Department official, Willis G. Armstrong recalled:

“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 Soviet Union from the late 1940s through the decade of the 1950s.  Usually, an advanced capitalist firm will sell to a less-developed country technology which is better than the customer has already but is becoming obsolete in the West – cutting edge developments will not be shared, for commercial and sometimes political reasons.   But in 1945 the defeated Germans were in no position to pick and choose what to allow the victors to remove, study and learn from; and as allies the USA and Britain could not object to the USSR taking part in this enforced technology transfer.

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 USSR; these included production equipment for the Opel Kadett, which Soviet engineers used as the template for the Moskvich car which was manufactured in Moscow from 1947.  

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 Kiev. The production machinery and design process were to be designed to produce 5,000 cameras per month.

“…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 St. Petersburg. 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 Russia building a facility with regard to Astronomy. The Zeiss Ikon specialist in photocells, Paul Görlich, also spent five years in Russia and returned to work in Jena and not in the Dresden photographic kombinats. Clearly, there were Russian binocular manufacturing locations that were aided by the reparations from Carl Zeiss…”

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.

Economic warfare

From the late 1940s onward, the USSR’s ability to increase its technological level by freely buying production equipment from abroad and contracting with foreign firms was ended.  In Willis G. Armstrong’s account:

“…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 USSR and her satellites as they are our most probable enemies.”

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 Soviet Union.”

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 US authorities went much further than this; with varying degrees of success they obstructed all trade with the USSR and its allies.  Marshall Plan aid, which was not purely financial but included very substantial technological assistance, was dependent on some very important conditions: recipient countries could not elect a communist government; they must integrate their economies into a capitalist trading bloc based around the OECD and later the EEC to the exclusion of significant economic relationships with the USSR; and they must not sell to the Soviet Union, China or countries allied to them any ‘strategically’ important products. 

The USA enshrined its ban on the export of technology and goods to the socialist countries into legislation in the 1949 Export Control Act.  In the spring of 1950, The US and its West European allies agreed to set up a body entitled the Co-ordinating Committee on Multilateral Export Controls (CoCom) to ensure that the other capitalist countries (including Japan) observed the embargo.  Before entering into trade with any socialist country, firms in the advanced capitalist nations were required to apply to CoCom and submit to assessment and verification procedures.  The original list of items covered by CoCom specified 144 classes of products which were fully or partially covered by the ban including machine tools, petroleum equipment, chemicals and chemical equipment, scientific equipment and 12 non-ferrous metals; during the 1950s the list was expanded to over 450 classes.   Export of ‘know how’, for instance by technology licensing and participation of Western firms in Soviet development projects, was out of the question.

Kenneth I. Juster, the US Under-Secretary of Commerce for Industry and Security, made an interesting remark in 2003:

“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 US authorities imposed an almost total ban on imports from the socialist countries and pressurised other capitalist countries to do the same.  This effectively put the socialist bloc into technological and economic quarantine.

Kenneth I. Juster: 'stringent measures were effective'
This new situation, extremely disadvantageous for the USSR’s long term development, stemmed from a change in global power relationships.  Whereas the USA emerged from World War Two much richer than before, Britain was almost bankrupt, France was recovering from German occupation, and Germany and Japan were now defeated and occupied nations; thus the US was supremely powerful among the capitalist countries.  The USSR, although it had suffered more human and industrial damage than any other country, had gained in prestige and now had some allies in Eastern Europe and, for a time, China; this, however, made its socialist system much more of a threat to the main capitalist powers.  The USA therefore had both the motive and the opportunity to suffocate the still relatively backward Soviet economy by depriving it of the oxygen of technology, remove its opportunity to develop comparative advantages by means of trade, and also to overstretch it through a diversion of resources into a relentless arms race.   The official US name for this policy was ‘containment’.

The vulnerability of the USSR to the ‘containment’ policy is by no means an indictment of its economic system.  None of the presently powerful capitalist countries have faced such an obstacle.  Even highly developed countries do not and could not create their advances in productivity on their own.  John Keaton and Samuel Kortum, in a paper published in the International Economic Review, outlined their study of patented technological innovations in the USA, Japan, Britain, France and the Federal Republic of Germany:

“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 States and Japan together contribute two-thirds or more to growth in each of the five countries, and only the United States derives most of its growth from its own innovation.”

The USA itself is heavily reliant for its growth on ‘foreign’ knowledge.  Not only does it recruit many thousands of specialists from abroad for its private and public sector R&D programmes, but the major US companies have subsidiaries in the other developed nations as well as in the Third World.  One of the key functions of these overseas operations is to imbibe the technical advances made in other countries, assimilate them and integrate them into the production methods of the firm.

Following the emergence of political disagreements between the USSR and China which resulted in a split between the two great socialist powers in the early 1960s, world communism presented less of an immediate threat to the capitalist ruling classes.  Britain, Japan and other US allies began to complain that they were suffering economically as a result of the loss of trading opportunities. The USA agreed that the CoCom list would be regularly reviewed, so that when the USSR acquired the ability to make a product, it would be removed from the list of banned exports.

Assembly line at the Popov radio factory, Riga, 1959
Soviet diplomacy was very active throughout the Cold War in seeking to moderate and subvert the CoCom regime and overcome barriers to trade with the Western countries and Japan.  Relaxation of East-West tensions in the 1960s, the détente of the mid-1970s which followed the Soviet achievement of approximate military parity with the West, and the Western energy shift from coal to gas, allowed the USSR under Khrushchev and Brezhnev to make some limited breakthroughs.

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 US authorities.  Further, Soviet industries usually had to purchase products from secondary, generally West European and Japanese sources, rather than from the US firms which developed the original technology.  The most advanced computers, and of more long-term importance, the plans, equipment and components for making computers, were always denied to the Soviet Union.  Thus the USSR was unable to benefit from the revolution in information and communications technologies which was led by the USA.

The USSR’s hopes of a breakthrough in constructive economic engagement with the United States were cut short by the Jackson-Vanick Amendment of 1975, which used the pretext of the Soviet Union’s restriction of Jewish emigration to Israel as a reason to prevent the normalisation of trade relationships with the USSR.  Sanctions against the Soviet Union were tightened again in 1980, following the entry of Soviet troops into Afghanistan.

Although the usually publicly-stated reason for the sanctions against the USSR was to hamper the development of its military capacity, the Soviet Union nevertheless surprised Western experts by its defence industry achievements.  As Professor Hanson remarks:

“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, USSR was responding to the US technological lead in the arms race by concentrating its investment efforts on the defence sector, leaving the civilian industries trailing behind. 

By the mid 1970s the Soviet Union had reached a position of approximate military parity with the USA and its allies; this found expression in the beginning of the Strategic Arms Limitation Treaty negotiations between the US and Soviet leaders.  This feat required not only the production of large quantities of high quality steel, non-ferrous metals and other intermediate products required for the building of submarines, missiles and missile silos, tanks, jet fighters etc; it also involved the concentration of the USSR’s most technologically advanced sectors, for example the electronics and aviation industries, on areas of military importance and the deployment of a high proportion of all R&D activity into military research. 

Living standards

It is possible to speculate on what the USSR might have achieved in civilian life had it not been for this prodigious military effort.  Nevertheless there were impressive transformations in the living standards of the population.  The assertion by US economists that the Soviet system “might not do a very good job at providing consumer goods” is open to challenge.

In Western accounts of the changes in the USSR in the late 1920s and 1930s, and particularly of the collectivisation of agriculture, it is usual to emphasise the extreme hardships of the period.  

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 USSR had taken place.  The emphasis on producing industrial machinery led within a very few years to a large increase in the output of the consumer goods sector.  The production of manufactured consumer goods in the USSR (including clothing, shoes, clocks, watches, phonographs, radios and bicycles) increased by 79% between 1928 and 1937. In concluding a detailed paper which applies modern statistical analysis to material from the Soviet archives, the Canadian researcher Robert C. Allen remarks:

“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 Moscow in the early 1930s, gives some impression of the transformation which was taking place in Russia at that time:

“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 Russia’s age-old backwardness they said to me: ‘And so we are beginning to have some respect for ourselves.’”

Between 1926 and 1939 the overall literacy rate in the USSR (for people from 9 to 49 years of age) increased from 56.6% to 87.4%.  The countryside and the less developed areas of the Soviet Union benefited from this as well as the urban centres, and some of the most impressive improvements took place in the predominantly Moslem Central Asian Republics of the Soviet Union, where before the revolution the ability to read and write was an attribute of a tiny elite.  In Uzbekistan the proportion of literate people increased from 11.6% in 1926 to 78.7% in 1939; in Kazakhstan it rose from 25.2% to 83.6%.  By 1959 the USSR had achieved overall literacy of 98.5%, reaching the level of the advanced capitalist countries in this respect.

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 West Asia.

The growth in material living standards in the USSR was interrupted by preparations for the Second World War; for obvious reasons individual consumption fell drastically during the war.  Subsequently, resources were concentrated on rebuilding of the country’s base of infrastructure and industry, on health and educational provision, and on the arms race with the USA.   Yet material living standards recovered and by the mid 1950s were rising rapidly.  The following figures are calculated by Western researchers:

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

(Source: Hanson) 

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, USSR


                        1965                1970                1975                1980                1985




per capita         38kg*              47.5kg             56.1kg             57.6kg             61.7kg




freezers per

100 families      11                    32                    61                    86                    91



TV sets per

100 families      24                    51`                   74                    85                    97



Number of


(total, in

thousands)        6,399               10,987             17,167             23,707             31,100


Source: Narkhoz.


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 Russia, Ukraine and Belarus, until 1989, were better than those in the UK.  The explanation for the overall worsening of health in the 1970s is a sad one but it does not denote a failure in the Soviet health system or a failure of Soviet industry to provide material prosperity.

In the 1960s and ‘70s, steep increases in the consumption of animal fats, alcohol and, probably most significantly, cigarettes, took place in the USSR.  Sales of tobacco products peaked in the late 1970s.  The rise in smoking among men and, to a lesser extent, among women in the Soviet Union, occurred while it was beginning to fall in the USA and Western Europe.  Smoking in the USSR reached levels which were among the highest in the world in the 1970s; it declined in the 1980s, and has been increasing again following the re-introduction of capitalism and sales promotion by profit-seeking tobacco companies.  According to research published in the American Journal of public health in 2004, over 60% of men in Russia now smoke and over 80% have a history of smoking. 

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.

As soon as smoking began to level off in the late 1970s, infant mortality started to fall again, and following the anti-alcohol campaign in the 1980s there was a dramatic rise in adult life expectancy.  But the re-introduction of capitalism in the 1990s ushered in an increase in death and disease not previously experienced outside wartime.

The ‘stagnation period’ 

The Soviet rate of growth in industrial productivity per worker, although still high in comparison with the USA’s rate of growth, began to slow down after the end of the 1950s.  An experiment to increase growth rates by reducing the number of output targets for firms, and increasing incentives for profitability, was introduced in 1965 but had no substantial positive effect.

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 USSR” and a “loss of economic momentum”, Wolfe elaborated a view that:

“…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 USA insisted also that its NATO allies increased their military budgets year on year, adding to the pressure on the USSR.

The key to understanding the gradual build-up of problems in the Soviet Union lies in the relationship between the diversion of resources into defence and the enforced economic and technological isolation of the socialist bloc.  The technical basis of the ‘economic momentum’ of the USSR and its allies arose from R&D in the research institutes and on-the-job innovations by technicians, managers and industrial workers, whose contact with the most advanced technological developments in the highly developed countries had been closed off by the USA at the onset of the Cold War.   That there was continued growth and technical improvements in the socialist countries despite the CoCom regime is testimony to the creativity and commitment of their people, and also to the ability of socialist institutions to optimise opportunities for innovation, for example by enormously increasing educational opportunities, encouraging participation by workers in organisations for ‘inventors and innovators’, and by deriving the maximum benefit from reverse-engineering and industrial espionage.

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:

“The Soviet Union was more than just a traditional global competitor; it strove to lead a universal socialist alternative to markets and democracy. The Soviet Union quarantined 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 US policies of containing and over-stretching the Soviet Union, the USSR’s communist leadership found itself in a dilemma.  It sought to encourage the pro-trade and pro-détente ‘doves’ in the USA and Western Europe, and to discourage and isolate the ‘hawks’.  But both these tendencies in the Western elites were in favour of capitalism and against socialism.  To admit that the hawkish strategies were effective in weakening the socialist bloc might have made their adherents even more powerful and influential.  The CPSU therefore maintained a public position of optimism about the potential of the Soviet Union to generate its own indigenous technical advances, and of glossing over the full negative economic effect of the USSR’s defence effort.  

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 Soviet Union as a period of stagnation.  There were major projects to develop Siberian energy and mineral reserves as those in the Western USSR became depleted; connected with this aim, thousands of Komsomol (Young Communist League) members were mobilised to build the 3,200 km Baikal-Amur railway line (BAM) through extremely difficult geological and climatic conditions.  Although coal and oil production rose only slowly, the decade saw a large increase in electricity production, from 1,038,607 to 1,492,075 million KwH, by development of nuclear power and the massive expansion of natural gas extraction.  On the domestic front, production of fridges and freezers slowed after most families had acquired one, but annual output of colour TV sets rose from 589,000 to 3,598,000.

BAM construction workers entertained during break time
Nevertheless an issue with very serious political consequences had arisen.  Soviet figures for the value of the USSR’s net material product (ie, output not including services) in comparison to that of the USA include the following:


Year                             Soviet NMP as a proportion of US NMP

1963                            63%


1974                            67%


1985                            66%

[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 USSR more women were in the full-time workforce, and also a higher proportion of the working population were employed in material production (as distinct from services) than was the case in the United States; therefore they also do not show that productivity per worker had reached two thirds of the US level. 

What the figures do show is that the Soviet effort to catch up with the USA in material production had peaked.  In addition, the USA’s ally Japan was rapidly expanding industrially.  The strategy of peaceful competition, through which the socialist countries aimed to catch up and overtake the capitalist bloc and on that basis lead the world towards communism, had failed. 

Bitter ends  

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 Angola, Mozambique, Nicaragua and Afghanistan - had been stalled by the military intervention of US-backed proxy forces.  The attempt of the Soviet Union to shore-up the new left-wing regime in Afghanistan led the USSR into an expensive and embarrassing military quagmire.

Nevertheless, the crisis which led to the catastrophic break-up of the Soviet Union was provoked not by the Soviet economic model but by its abandonment.

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
Gorbachev is credited by Western analysts with releasing the USSR’s Central and East European [CEE] allies from their adherence to socialism by announcing that the Red Army would not intervene if those countries were to return to capitalism. Gorbachev’s role was actually more active than this suggests- as the leader of the Soviet Communist Party he publicly insisted that the leaderships of these countries initiate radical market reforms; thus forcing those in the ruling parties in the CEE countries who wished to preserve the socialist planned economy into opposition to the USSR, a position which was antithetical to their training and communist principles. Thus they were politically neutralised and had no credible response to the nationalist, consumerist and ‘democratic’ movements which pushed through the defection of the CEE countries to the West in 1989.

A not-dissimilar pattern emerged in the break-up of the USSR itself.  The internationalist and collectivist ideas of communism, which had borne fruit in economic and cultural modernisation and social stability, had overcome separatist tendencies during the nearly seven decades of the socialist union. But the Communist Party leadership was no longer supporting socialism, and the Party itself was crumbling. The comments of Philip Hanson are illuminating despite his anti-Soviet rhetoric:

“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 Ukraine and Georgia. To outflank this local competition, republic Party bosses turned nationalist… The crunch came when Russian politicians, led by Boris Yeltsin, began to see Russia as 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 USSR.

By 1999, the output of the Russian economy had fallen to 57% of its 1990 level. Ukraine and Moldova fared even worse, with declines to 36% and 31% of 1990 GDP (EBRD figures). Although the Russian economy is rising again on the strength of higher gas prices and a re-assertion of state control under Putin’s government, there has been a comprehensive de-industrialisation; the thoroughness of this decline is illustrated by these figures, which express production in 2003 as a percentage of 1990 levels:

Output of Selected Branches of Industry in Russia in 2003 Compared to 1990

(1990 = 100)


Total Industry                                       66


Electric power                                        77

Gas                                                        97

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

Food                                                      67


Source: Goskomstat, 2004, Table 14.3.


Citing these statistics, David M. Kotz of Massachusetts University comments:

“From the diversified, highly industrialized economy it had in 1990, Russia 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.”

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 Russia is now far below that during Soviet times; and light industry has almost disappeared.   

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 Russia and the other former constituent republics of the USSR has not been to an ‘ideal’ capitalism, but to a capitalism determined by these countries’ historical and international positions. Equally, the socialism which existed in the Soviet Union was never an ‘ideal’ socialism, but one whose opportunities for development were constricted by historical and international factors – yet the gap between the economic and social achievements of the USSR and those of the capitalist entities which have replaced it is striking.

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? Washington Post


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Literacy and life expectancy:


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Jean-Jacques Chanaron, Ford in the USSR and Russia


Albert Kahn, corporate history:


Willis G Armstrong, oral history:


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William Mandel, A New Look at Russia, Evans Brothers, 1965


World literacy rates:


Changing average height in the USSR: Brainerd (CEPR), Mironov


Diabetes in the UK and USSR:  McKee, Nolte,


Articles on smoking in the USSR and Russia:


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


Soviet production statistics and material prosperity indicators: Narkoz


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