USSR – An economic perspective
“Creating a perfect society, by going counter to human nature is dead. The basic
error of communism is that it did not understand human nature”.
The Union of Soviet Socialist Republics (USSR) spread from 1917 to 1989 from
Central and Eastern Europe to Asia. Take into account that the Soviets NEVER
considered themselves communists, but SOCIALISTS. Communism was an ideal
the socialistic society was striving towards. Was the USSR really following
Marxist Theory? Marx did propose to centralise all instruments of production in the
hands of the state, that is of the proletariat organised as the ruling class, and to
increase the total productive forces as rapidly as possible. For an initial phase,
Marx did propose centralized planning. As such, the ruler has unlimited powers,
and could put arbitrary schemes together. This has consequences that differ from a
market economy, such as “price setting”. Some economists argue that it was
initially based on Marx Theories, but the system degenerated when Stalin rised to
power, when it ceased to be democratic but was based on the arbitrary plans of a
single ruler. However, the progression to that result could be inevitable: once you
put the entire means of production in the hands of the state, leaders get drunk by
power.
We will start by retaking concepts from Karl Marx, and compare that to liberal
economical thinking. According to Marx, the Labour Theory of Value says that all value comes from labour time (effort/skill), not from supply and demand. Marx’s
socialistic theory was based on the Labour Theory of Value. Marx’s Exploitation
Theory states that workers do not receive the “full value” of their labour, because
capitalists earn profit (surplus-value) rather than only the “replacement rate” to pay
for costs of capital. LTV showed that market prices would not be necessary for
economic calculation because the “true value” of goods was based on the amount
of labour used to produce the goods. As I have mentioned before, I am totally
against this theory. For some reason, many business people calculate the final price
by adding a mark-up to the cost. But eventually, it will be the market that validates
if that price is accessible to the pockets of the final consumer or not.
Marx laid out the basic groundwork, justification, and vision. But it was Lenin who
sorted out the details to put theory into practice. Marx argued that a “dictatorship of
the proletariat” would be necessary in the transition period between capitalism and
communism period. This means all the workers coming together to govern a
society, a “worker state”. But did Marx advocate planning? He believed that
competition would eventually lead to concentration, as capitalism increases
production and it’s ties to the state, increase in production would fall to fewer and
fewer larger firms. Freedom of competition slowly erodes and changes into
monopoly. The proposal was to move towards state planning, but with worker
control. All officials, without exception, should perceive salaries at the level of
ordinary “workman’s wages”, while uniting the interests of the workers and the
majority of the peasants, at the same time serve as a bridge leading from capitalism
to socialism. After WW1, it was considered that a better way to organize society
should be found to combat famine. The ideal solution is a centralised production,
methodically organised in large units and, in the final analysis, the organization of the world economy as a whole.
The Bolshevik Vision: “The communist way of production presupposes not
production for the market, but only for its own needs. Not every individual
produces for himself, but the entire gigantic cooperative produces for all. We do
not have commodities, only products, which will not be exchanged, bought or sold.
They will just go to joint warehouses and be given to those who need them. In such
conditions, money will not be required. In a higher phase of communist society,
division of labour would disappear, becoming labour not only means of life but it’s
prime want. From each according to his ability, to each according to his needs!”.
Consider that this was an idealistic view of the future, and that socialism was a path
towards this final goal. We can now see clearly the difference between socialism
and communism. In a communistic society, money would disappear and people
would work for the joy of working. Communism was a dream, a utopian society
which in it’s pure form has never been applied, being the USSR actually a
SOCIALIST country.
With the Bolsheviks revolution in October 1917, private property was expropriated.
Consider that staple food items were common and the danger of famine was real.
Small business owners would be encouraged to socialize voluntarily. Naturalisation
of large-scale industry was primary, as it allowed the formation of unions, which
could be used to more easily plan and direct the sectors centrally. Banks were nationalized as well, and in the long term the idea was that only things in the plan
would be allowed to produce. Eventually they could slowly allow money to
dissolve by using non-cash transactions for everything.
Lenin applied Five Year Plans for Centralised Planning. The planned would
provide scientific calculation about material, financial and resource allocation
based on industry. The plan should be analized to study facts and figures,
identifying mistakes and suggesting a remedy. One of the challenges was how to
maintain democracy under Centralised Planning. Democracy within state
enterprises was unworkable and one-man management had to be introduced in
order to guarantee efficiency. It was difficult to Plan the Economy and take into
account what individuals want. In the hope to abolish money, inflation was ignored
with the consequent destruction of the currency. A “crude system of border” was
introduced (an anti-immigrant system, consider that migration ruins the plan).
Inequality persisted, even without money, people can become even more envious.
The industry was almost fully nationalized, and increase in wages led to shortage of
machinery and manufactured goods. Industrialization was the priority, so
exceptional measures were introduced to continue running the economy. The rise of
Stalin saw a pseudo-dictatorial state, which was a necessary evil to run a centrally
planned economy. Decentralization should have taken place in order to introduce
democracy. The Workers Opposition was always in favour of the party controlling
the state, and thus the unions as well. In order to maintain himself in power, Stalin
became a tyrant eliminating the opposition. Whether other leaders would have
behaved differently than him, it’s unclear. To manage a Centrally Planned
Economy requires strong leadership, and even if it starts with good intentions, it
ends up in some sort of dictatorship. Regardless of the everlasting intention of
perpetuating the Soviet Union as an ultra-left government, Right and Left also
existed within it. The programme of the Right was more market-friendly, more
decentralized and more democratic. Very clever, Stalin picked-up ideas both from
the left and the right and made them his own, in his goal to become the most powerful person in the Soviet Union.
The German invasion of WW2 inflicted punishing blows to the economy of the
Soviet Union, with Soviet GDP falling 34% between 1940 and 1942. Industrial
output did not recover to its 1940 level for almost a decade. In 1961, a new
redenominated Soviet rubble was issued. It maintained exchange parity with the
Pound Sterling until the dissolution of the USSE in 1991. After a new leadership,
headed by Leonid Brezhnev, had come to power, attempts were made to revitalize
the economy through economic reform. Starting in 1965, enterprises and
organizations were made to rely on economic methods of profitable production,
rather than follow orders from the state administration. By 1970, the Soviet
economy had reached its zenith and was estimated at about 60 percent of the size of
the USA in terms of the estimated commodities (like steel and coal).
The Era of Stagnation in the mid-1970s was triggered by the Nixon Shock and
aggravated by the war in Afghanistan in 1979 and led to a period of economic
standstill between 1979 and 1985. Soviet military build-up at the expense of
domestic development kept the USSR's GDP at the same level during the first half of the 1980s. The Soviet planned economy was not structured to respond
adequately to the demands of the complex modern economy it had helped to forge.
The massive quantities of goods produced often did not meet the needs or tastes of
consumers. The volume of decisions facing planners in Moscow became
overwhelming. The cumbersome procedures for bureaucratic administration
foreclosed the free communication and flexible response required at the enterprise
level for dealing with worker alienation, innovation, customers, and suppliers.
During 1975–85, corruption and data fiddling became common practice among
bureaucracy to report satisfied targets and quotas thus entrenching the crisis.
One of the greatest strengths of Soviet economy was its vast supplies of oil and gas;
world oil prices quadrupled in the 1973-74, and rose again in 1979-1981, making
the energy sector it’s chief driver.
While all modernized economies were rapidly moving to computerization after
1965, the USSR fell further and further behind. Moscow's decision to copy the IBM
360 of 1965 proved a decisive mistake for it locked scientists into an antiquated
system they were unable to improve. They had enormous difficulties in
manufacturing the necessary chips reliably and in quantity, in programming
workable and efficient programs, in coordinating entirely separate operations, and
in providing support to computer users. By 1970 the U.S. had 50 times as many
computers as the USSR, which lagged in most aspects of cutting-edge technology.
Many concepts can we sum-up as conclusion. The Soviet Union was initially an
agrarian society which, through Centralised Planning, moved towards heavy
industry much driven by it’s Oil & Gas sector, after WW2. The Centrally Planned
Economy forced a dictatorial leadership style, which was also spread towards the
organizational management. With equal salary and no possibility to choose their
career path, demotivated workers did not help boost efficiency. Inflation, currency
devaluations and shortage of goods (or at least the inability to choose between
different products), was quite common. But, most importantly, the Centrally
Planned Model hindered entrepreneurship and technological development. In the
long-run, the USSR simply was left behind the Western Economies. No Apple,
Google or IBM could arise with heavy levels of government intervention. The model assured that innovation could only take place in government facilities, and
whatever influence from private actors would easily be intervened by the
government.
I am not against socialism (remember that communism has never really existed),
but it is a solution best applied to poor countries. With all it’s downsides, it does
provide a better solution to the poor people in the short term. In the long term, only
entrepreneurship and technological development can secure wealth creation and
distribution for everyone. That is my humble opinion.
