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Economy of the Soviet Union

The Soviet Union was the first country to base its economy on communist principles, were the state owned all the means of production and farming was collectivized.

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War Communism and the New Economic Policy (NEP)

During the Civil War (1917-1921), Lenin adopted "War Communism," which entailed the breakup of the landed estates and the forcable seizure of agricultural surplues. The Kronstadt revolt signaled the growing unpopularity of War Communism in the countryside: in March 1921, at the end of the civil war, disillusioned sailors, primarily peasants who initially had been stalwart supporters of the Bolsheviks under the provisional government, revolted against the new regime. Although the Red Army, commanded by Leon Trotsky, crossed the ice over the frozen Baltic Sea and quickly crushed the rebellion, this sign of growing discontent forced the Party under Lenin's direction to foster a broad alliance of the working class and peasantry (80% of the population), although orthodox Marxist-Leninists favored a regime solely representative of the interests of the revolutionary proletariat. Lenin consequently ended War Communism and instituted the New Economic Policy (NEP), in which the state allowed a limited market to exist. Small private businesses were allowed and restrictions on political activity were somewhat eased.

However, the key shift involved the status of agricultural surpluses. Rather than requisitioning agricultural surpluses by force (the hallmark of War Communism), the NEP allowed peasants to sell their surplus yields on the open market. Meanwhile, the state still maintained the nationalization of what Lenin deemed the "commanding heights" of the economy (heavy industry such as the coal, iron, and metallurgical sectors along with the banking and financial components of the economy), which employed the majority of the workers in the urban areas. However, state industries would be profit-maximizing and largely free to make their own economic decisions.

The Soviet NEP (1921-29) was essentially a period of "market socialism" quite similar to the Dengist reforms in Communist China after 1978 in that both foresaw a role for private entrepreneurs and markets based on trade and pricing rather than centralized planning. As an interesting aside, during the first meeting in the early 1980s between Deng Xiaoping and Armand Hammer[?], a US industrialist and prominent investor in Lenin's Soviet Union, Deng pressed Hammer for as much information on the NEP as possible.

With new market incentives to raise productivity, agricultural yields not only recovered to the levels attained before the Bolshevik Revolution, but greatly improved. The break-up of the quasi-feudal landed estates of the Czarist-era countryside gave peasants their greatest incentives ever to maximize production. Now able to sell their surpluses on the open market, peasant spending gave a boost to the manufacturing sectors in the urban areas. As a result of the NEP, and the breakup of the landed estates while the Communist Party was consolidating power between 1917-1921, the Soviet Union became the world's greatest producer of grain.

Agriculture, however, would recover from civil war more rapidly than heavy industry. Factories, badly damaged by civil war and capital depreciation, were far less productive. In addition, the organization of enterprises into trusts or syndicates representing one particular sector of the economy would contribute to imbalances between supply and demand associated with monopolies. Due to the lack of incentives brought by market competition, trusts were likely to sell their products at higher prices.

The slower recovery of industry would pose some problems for the peasantry, who accounted for eighty percent of the population. Since agriculture was relatively more productive, relative price indexes for industrial goods were higher than those of agricultural products. The outcome of this was what Trotsky deemed the "Scissors Crisis" because of the scissors-like shape of the graph representing shifts in relative price indexes. Simply put, peasants would have to produce more grain to purchase consumer goods from the urban areas. As a result, some peasants witheld agricultural surpluses in anticipation of higher prices, thus contributing to mild shortages in the cities. This, of course, is normal, speculative market behavior, but some top Communist Party cadres, with little understanding of market economics, did not understand this phenomenon, considering it to be exploitative of urban consumers.

In the mean time the Party took constructive steps to offset the crisis, attempting to bring down prices for manufactured goods and stabilize inflation, by imposing price controls on key industrial goods and breaking-up the trusts in order to foster market completion.

However, the radical or leftwing of the Party, led by Trotsky, who long opposed the NEP for ideological reasons, exploited the "Scissors Crisis" to gain ideological capital over the moderate wing of the party supportive of the NEP, led by Nikolai Ivanovich Bukharin. Initially, Stalin united with the Bukharinite faction of the Party to defeat Trotsky. But he eventually tuned against the moderates who favored the NEP once Trotsky was exiled in order to consolidate his control over the party and the state.

In order to devise a pretext for abandoning the NEP, Stalin himself would move on the exploited the problems associated with the "Scissors Crisis". Moreover, he pointed to the rise of the Nepmen (small retailers profiting off the flourishing urban-rural trade) and Kulaks (the emerging middle class of peasant farmers) under the NEP as new capitalistic classes hostile to the Party's monopoly on power. Since the NEP economy was a mixed economy, he was also able to point to inflation and unemployment as the evils of the market.

Stalin's Consolidation of Power and the Administrative Command Economy (ACS)

Stalin's Consolidation of Power

Since succession mechanisms had not grown regualrized in party procedure, Lenin's death in 1924 heightened the fierce political battle between factions in the party hostile and supportive of the NEP. Stalin eventually shifted from side to side and eventually rid the party of both factions by forging a path of development that integrated the ideas of both camps. He adapted the leftist (hard-line) stance opposing agricultural production governed by private economic decision-making, which would entail the liquation of the Kulaks and Nepmen as classes and rapid industrialization by the brutal harnessing of labor and capital, favored by the ideologues as an attempt to produce the material basis of communism quickly under unfavorable conditions. But he also endorsed the rightist (pragmatist) notion of "socialism in one country", which favored concentrating on economic development rather than exporting revolution. In that respect, he also favored extensive exports of grain and raw materials, thereby which the Soviet Union could attain the revenues from foreign exchange to import foreign technologies need for industrial development.

At the Fifteenth Party Congress in December of 1927, Stalin, now an unchallengeable dictator, abandoned the NEP. Warning delegates of an impending capitalist encirclement, he stressed that survival and development could only occur by pursuing the rapid development of heavy industry[?]. Stalin remarked that the Soviet Union was "fifty to a hundred years behind the advanced countries" (the United States, France, Germany, Great Britain, etc.), and thus must narrow "this distance in ten years". In a perhaps eerie foreboding of World War II, Stalin declared, "Either we do it or we shall be crushed". Stalin's abandonment of the NEP with the first Five-Year Plan drafted by GOSPLAN[?] in 1929 was the key turning point in Soviet history, establishing central planning geared toward rapid heavy industrialization as the basis of economic decision-making.

To oversee the radical transformation of the Soviet Union, the party, under Stalin's direction, established GOSPLAN[?] (the State General Planning Commission), a Communist Party organ responsible for guiding the socialist economy toward accelerated industrialization. In April 1929 GOSPLAN released two joint drafts that began the process that would industrialize the primarily agrarian nation. This 1700 page report became the basis the first Five Year Plan for National Economic Construction, or "Piatiletka", calling for the doubling of Soviet capital stock between 1928 and 1933. Shifting from Lenin's NEP, the First Five Year Plan would begin the rapid, incredible process of transforming a largely agrarian nation consisting of peasants and emerging from Czarist absolutism into an industrial superpower. In effect, the initial goals were laying the foundations for future, exponential economic growth.

Brief Overview of Economic Planning under The ACS

The new economic system put forward by the first Five-Year plan entailed a complicated series of planning arrangements. In an ideal plan, the Politburo sent its list of priorities for the Five-Year Plan to the Council of Ministers, which elaborated them and sent them to the State Planning Commission or GOSPLAN[?], which disaggregated the priorities to its own departments. The departments worked out the drafts of the parts of the plan, which were re-aggregated into a full draft by GOSPLAN[?]. This draft of the plan would be sent to the Council of Ministers and to the Party's Politburo and Central Committee Secretariat. The Council of Ministers then disaggregated the plan into task by ministry, then by lower units, eventually to the enterprise level. Enterprises then assesed the feasibility of targets and estimated needed inputs, which was the most intense bargaining phase of planned economic decision-making. Estimates after this bargaining process were re-aggregated to the Council of Ministers, which sent the revised estimates to the State Planning Commission (GOSPLAN). The redrafted plan was then sent to the Council of Ministers and the Party's Politburo ad Central Committee Secretariat for approval. The Council of Ministers submited the Plan to the Supreme Soviet (the rubber-stamp Parliament) and the Central Committee submits the plan to the National Party Congress, both for rubber stamp approval. By the time this process is completed, the plan became law.

The first Five-Year plan focused on the mobilization of natural resources to build up the country's heavy industrial base by increasing output of coal, iron, and other vital resources. At a high human cost, this process was largely successful, forging a capital base for industrial development more rapidly than any country in history. However, as the economy grew more complex in the post-Stalin years, the prudence of planned economic decision-making would prove less apt at attaining growth through technological innovation and improvements in productivity, thus resulting in the stagnation associated with the later years prior to the dissolution of the Soviet Union.

Support for the Administrative Command System (ACS)

Advocates of a centrally planned economy (CPE) or an administrative command system (ACS) of the Soviet-type consider this form to have important advantages. First, the government can harness land, labor, and capital to serve the political and economic objectives of the leadership. Consumer demand, for example, can be restrained in favor of greater investment in capital investment for economic development channeled into desired pattern. For example, many modern societies fail to develop certain medicines and vaccines which are seen by medical companies as being unprofitable, but by social activists as being necessary for public health. The state can begin building a heavy industry at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without reliance on external forces of finance. Second, CPEs can maximize the continuous utilization of all available resources. Under CEPs, neither unemployment nor idle plants should exist beyond minimal levels, and the economy should develop in a stable manner, unimpeded by inflation or recession. Third, CPEs can serve social rather than individual ends; under such as system, the leadership can distribute rewards, whether wages or perquisites, according to the social value of the service performed. A planned economy, proponents argue, eliminates the dependence of production on individual profit motives, which may not in themselves provide all society's needs.

Collectivization and Industrialization in Practice

Under the NEP, the abandonment of the War Communist (1917-21)-era requisitioning of agricultural surpluses gave peasants individual incentives to improve agricultural productivity by allowing them to sell their surpluses to the state on the open market. The process of collectivization[?], however, overseen by the first Five-Year Plan, abandoned this policy. Instead, peasants were force to give up their private plots of land and property, and work for a collective farm, and be forced to sell their produce for an artificially low price that had been set by the state.

Now that the state was able to seize agricultural surpluses, it would be able to export grain to attain the necessary foreign exchange revenues needed to import technologies necessary for heavy-industrialization. However, peasants bitterly opposed this process and in many cases peasants destroyed their animals rather than give them to collective farms. Because of this, collectivization led to a drop in the high productivity of Russian farming achieved during the NEP years, which did not regain the NEP level until 1940, or allowing for the further disasters of World War II. Perhaps the state would have been able to export more grain on the foreign market had it not even gone through with this disastrous process. Moreover, collectivization worsened famine conditions during a time of drought, particularly in the Ukraine. The number of people who died in these famines is estimated at between two and five million. The number of casualities, however, is bitterly disputed to this day.

However, the mobilization of resources by state planning augmented the county's industrial base. Pig iron output, necessary for development of nonexistent industrial infrastructure rose from 3.3 million to 10 million tons per year. Coal, the integral product fueling modern economies and Stalinist industrialization, successfully rose from 35.4 million to 75 million tons, and output of iron ore rose from 5.7 million to 19 million tons. Other examples of the effectiveness of early socialist development were complexes such as Magnitogorsk[?] and Kuznetsk[?], the Moscow and Gorky[?] automobile plants, the Urals and Kramatorsk heavy machinery plants, and Kharkov, Stalingrad and Cheliabinsk tractor plants either built or under construction.

Based largely on these figures the Five Year Industrial Production Plan had been fulfilled by 93.7 percent in only four years, while parts devoted to heavy-industry part were fulfilled by 108%, explaining why Stalin in December 1932 declared the plan a success to the Central Committee, since increases in the output of coal and iron would fuel future development. Some historians even suggest that the first Plan could have been even more successful if the USSR had not confronted foreign crisis beyond its control.

According to Robert C. Tucker[?], Stalin's program was under-fulfilled by a mere 6 percent "only because the refusal of nonaggression pacts by neighboring countries and complications in the Far East", such as the Japanese occupation of Chinese Manchuria in 1931, which foreshadowed war and forced the USSR to convert some plants to munitions production to meet gaps in defense potential.

While undoubtedly marking a tremendous leap in industrial capacity, the Five Year Plan was, of course, extremely harsh on industrial workers; quotas were extremely difficult to fulfill, requiring that miners put in 16 to 18-hour workdays, and working conditions were poor, even hazardous. By some estimates, 127,000 workers died during the four years (from 1928 to 1932). Due to the allocation of resources for industry along with decreasing productivity since collectivization a famine occurred. The use of forced labor must also not be overlooked either. In the construction of the industrial complexes, prisoners were used as expendable resources. The quotas were so repressive that, when unfulfilled by workers, could result in treason charges, and exile to the GULAGs.

Changes in Soviet Society: Modernization

Stalin's industrial policies largely improved living standards for the majority of the population, although the debated amount of causalities resulting from Stalinist policies taints the Soviet record.

Employment, for instance, rose greatly; 3.9 million per year was expected by 1923, but the number was actually an astounding 6.4 million. By 1937, the number rose yet again, to about 7.9 million, and in 1940 it was 8.3 million. Between 1926 and 1930, urban population increased 30 million. Unemployment had been during the time of the Czar and even under the NEP, but it was not a major factor after the implementation of Stalin's industrialization program. The mobilization of resources to industrialize the agrarian society industrial created a need for labor, meaning that the unemployment went virtually to zero. Several ambitious projects were begun, and they supplied raw materials not only military weapons but for consumer goods.

The Moscow and Gorky[?] automobile plants produced automobiles that the public could utilize, and the expansion of heavy plant and steel production made production of a greater number of cars possible. Car and truck production, for example, reached 200,000 in 1931. Because the industrial workers needed to be educated, the number of schools[?] increased. In 1927, 7.9 million students attended 118,558. This number rose to 9.7 million students and 166,275 schools by 1933. In addition, 900 specialist departments and 566 institutions were built and functioning by 1933.

The Soviet people also benefited from a degree of social liberalization. Females were given an adequate, equal education and women had equal rights in employment, precipitating improving lives for women and families. Stalinist development also contributed to advances in health care, which vastly increased the lifespan for the typical Soviet citizen and the quality of life. Stalin's policies granted the Soviet people universal access to health care and education, allowing this generation to be the first not to fear typhus, cholera, and malaria. The occurrences of these diseases dropped to record-low numbers, increasing life spans by decades.

Soviet women under Stalin were also the first generation of women able to give birth in the safety of a hospital, with access to prenatal care. Education was also an example of an increase in standard of living after economic development. The generation born during Stalin's rule was the first near-universally literate generation. Engineers were sent abroad to learn industrial technology, and hundreds of foreign engineers were brought to Russia on contract. Transportation was also improved, as many new railways were built. Workers who exceeded their quotas, Stakhanovites, received many incentives for their work. They could thus afford to but the goods that were mass-produced by the rapidly expanding soviet economy.

Of course, these overall gains were not universal. Kulaks, prosperous peasants, were exiled to Siberia as political prisoners (a large portion of the kulaks served as forced labor). In 1975, Abramov[?] and Kocharli[?] estimated that 265,800 kulak families were sent to the GULAG in 1930. In 1979, Roy Mendvedev[?] used the Abramov's and Kocharli's estimate to calculate that 2.5 million peasants were exiled between 1930 and 1931, but he suspected that he underestimated the total number. Tragically, Siberia was both sparsely populated and the site of most of the Soviet Union's natural resources. Prison labor, in large measure, explains the Soviet Union's amazingly high output levels of key natural resources during the early stages of industrial development

Destalinization and the Rise of Nikita Khrushchev

After Stalin's death, Khrushchev shocked delegates to the 20th Party Congress[?] on February 23, 1956 by publicly denouncing the "cult of personality" that surrounded Stalin, and accusing Stalin of mass murder during the Great Purges. This effectively alienated Khrushchev from the more conservative elements of the Party. He became Premier on March 27, 1958 after a long and complex series of maneuvers, notably the crucial removal of Stalin's obvious successor, Beria, head of the KGB. Even before this watershed speech, however, the new leadership declared an amnesty for some serving prison sentences for crimial offences, announced price cuts, and relaxed the restrictions on private plots. The ten-year period that followed Stain's death also witnessed the reassertion of political power over the means of coercion. The party became the dominant institution over the secret police and army. Effectively overnight, Stalin's death freeded the Soviet people from his apparatus of state terror, thus reducing the role of prison labor in the economy.

The Post-Stalin Years: Cold War and Economic Planning

The ACS: From Rapid Growth to Stagnation

When the First Five-Year Plan drafted by GOSPLAN[?] established centralized planning as the basis of economic desision-making, the Soviet Union was still largely an agrarian nation lacking the complexities of a highly industrialized one. Thus, its goals, namely augmenting the country's industrial base, were those of extensive growth or the mobilization of resources. At a high human cost, due in large party to prison labor, and the effective militarization of factories, the Soviet Union forged a modern, highly industrialized economy more rapidly than any other nation beforehand. By the 1970s, the Soviet Union was a complex industrialized society with an intricate division of labor and with complex interconnection of industries over a huge geographical expanse that had reached military parity with the Western powers.

During the early Brezhnev years following 1964, the ACS economy still had not yet exhasted its capacity for growth. The Soviet Union improved living standards by doubling urban wages and raising rural wages by around 75%, building millions of one-family apartments, and manufacturing large quantities of consumer goods and home appliances. Under his tutelage, industrial output also increased by 75%, and the Soviet Union became the world's largest producer of oil and steel. The twenty years following Stalin's death in 1953 were the best period in the history of Russia for the ordinary citizen in terms of rising living standards, stability, and peace. Terror, famines, and world war were only horrific memories while the tide of history appeared to be turning in favor of the Soviet Union. The United States was mired in economic recession resulting from the OPEC oil embargo, inflation caused by excessive government expenditures for the Vietnam War, and not to mention the wartime quagmire. Meanwhile, pro-Soviet regimes were making great strives abroad, especially in the Third World. Vietnam had defeated the United States, becoming a united, independent state under a Communist government while other Communist governements and pro-Soviet insurgencies were spreading rapidly across Africa, Southeast Asia, and Latin America.

But during late Brezhnev years the economy began to stagnate and the population increasingly began demanding greater quantities of quality goods than the economy could produce. Plan quotas (control figures) for enterprises, of course, were fulfilled on the basis of output, not quality. In the past, shoddy goods were more acceptable when access to consumer goods was so limited. But with ever-improving living standards and with the growth of a new middle class since de-Stalinization, shortages of shoddy goods grew increasingly unacceptable. Supply shortages were not helped by the insistence on raising wages while keeping prices down at artificially-low administratively-set levels either.

Intensive growth (growth to improvements in productivity), in contrast to the extensive growth (mobilization of capital and labor) achieved under Stalinist industrialization, would prove to be the disadvantage to centrally directed economic decision-making. As the Soviet economy grew more complex, as it required more and more complex disaggregation of control figures (plan targets) and factory inputs, and as it required more communication between the enterprises and the planning ministries, and as the number of enterprises, trusts, and ministries multiplied, it increasingly suffered from a systemic inability to respond to change, adapt new technologies, and provide incentives at all levels to improve growth, productivity and efficiency.

At the enterprise level, managers not only lacked the incentives to improve productivity found in market economies, but often had incentives not to over-fulfill plan targets by as much as possible. For one, there was a tendency to overstate capacity in order to bargain for more advantageous plan targets or control figures with the ministries (targets that, of course, would be easier to implement). Faulty communication, more of a problem as the economy grew larger and more complex, would reverberate throughout the economy, distorting supply and demand figures for inputs in interconnected industries. Moreover, managers were often more preoccupied by institutional careerism than improving productivity. They received fixed wages and only received incentives for plan fulfillment on the basis of job security, bonuses, and benefits like special clinics and private dachas. Managers received such benefits when targets were over-fulfilled, but when, for instance, they were greatly over-fulfilled, they only saw their control figures increased. Hence, there was an incentive to exceed targets, but not by much. This effect was known as the "rachet effect." Prominent American specialists on the Soviet economy Paul Gregory[?] and Robert Stuart[?] emphasize these points.

Planning was also very rigid; plant managers were not able to deviate from the plan and were allocated certain funds for certain capital and labor inputs. As a result, plant managers could not improve productivity by laying-off unnecessary workers due to such labor controls. There was substantial underemployment due to such rigidities by the plans devised during collective bargaining between enterprises and ministries.

And there was a systemic lack of incentives to improve productivity through technological innovation. If the production process were more efficient because of the introduction of new technology, enabling the same process to require less inputs or less labor, it would just result in lower administratively-set prices rather than prices set by a profit-maximizing equilibrium of supply and demand. In other words, improved productivity through technological innovation would do little to make the industry more profitable for those who had a stake in it.

Meanwhile, due to the realities of the Cold War, the Soviet Union, with its historically much smaller productive capabilities than those of the West, faced a disproportionate burden in the arms race, having to devote a much relatively higher segment of its economy to military expenditures to reciprocate those of the West. Before the Cold War, long-standing disparities in the productive capacities, developmental levels, and geopolitical strength existed between East and West. The "East", in many respects, had been behind the "West" for centuries. As a result, reciprocating Western military build-ups during the Cold War placed an uneven burden on the Soviet economy, forcing them allocate a disproportionately large share of their resources to the defense sector. The burden of the Cold War, in conjunction with the growing impracticality of centrally-administered economic decision-making as the economy grew larger and more complex, would lead to a huge imbalance between supply and demand for consumer goods in the Soviet Union's late years.

As mentioned, the Khrushchev and Brezhnev years saw great concessions to consumers, enabling the Soviet people to reap the benefits of the Soviet Union's industrialization during the Stalin years. But as the purchasing power of Soviet workers increased, the products that they demanded were in an ever-shorter supply. Although wages for workers were relatively high, workers were often unable to purchase the products that they demanded because of systemic supply shortages caused by the stagnation of the Soviet economy once it had industrialized and reached a high level of complexity. Many workers thus began accumulating large surpluses at Gosbank, which operated as what would be a state bank and a commercial bank in a market economy. These surpluses would be wiped out after the dismantling of the Soviet economy when price and currency controls were abruptly lifted in 1992.

Calls for Reform

Although economic stagnation was pronounced by the time Gorbachev became party chief in 1985, the sluggishness of the Soviet Union's command economy was evident two decades earlier amid calls for reform. Following Khrushchev's ouster in 1964, however, the reform movement high up party ranks was perhaps weakened by the growing power of the ministries and collective leadership. As the political atmosphere gradually moved toward becoming more relaxed since de-Stalinization, a pattern of collective leadership emerged that reconciled the interests of many different bureaucracies and interest groups. In contrast to the system of of delegated power in the post-Communist years, Soviet politics under Brezhnev was generally based on informal personal influence that a cadre accumulated over some particular institutions and compromise between committee members.

Known as "bureaucratic pluralism" by Western Sovietologists, this dyanamic of politics has been used to explain the aborted Kosygin[?] Reforms of 1965, which called for giving industrial enterprises more control over their own production-mix, some flexibility over wages, and allowed them to put a proportion of profit into their own funds. Since these reforms suggested a move away from detailed central planning and control from above, the planning ministries, whose numbers were proliferating rapidly, fought back and protected their old powers. This was not a difficult task since the Brezhnev/Kosygin collective leadership lacked the strength to counter their influence (the ministries, after all, controlled supplies and rewarded performance) in order to implement the reforms. The ministries curtailed them by just issuing more detailed instructions that retarded the reforms, impeding the freedom of action of the enterprises. Nor did these economic reforms, aimed at increasing productivity by pushing aside surplus labor, necessarily appeal to workers. The constituency that stood to gain the most from the reforms was the enterprise management, but they weren't enthusiastic either since they weren't convinced that these reforms might last. Finally, by 1968 there was the unfortunate example of the Prague Spring in Czechoslovakia, which put the brakes on the momentum for economic and political reform. In contrast, the military sector continued to be the success story.

Due to continued growth rates, some Sovietologists have argued that the ACS system had not yet exhausted its capacity for growth by the late 1960s since it was still sustaining higher rates of growth than the Western powers. In light of this, it has been argued that the Kosygin[?] Reforms of 1965 could have been implemented at just the right time to save the Soviet Union and spare the population of the hardships of the past twenty years. By the Gorbachev era (1985-1991), in contrast, a decade of stagnation, declining productivity, and systemic problems down to the factory level might have been insurmountable. Perhaps the problem with the Kosygin/Brezhnev collective leadership was not too much power concentrated in their hands, but not enough. Forces like the ministries and the military won out, pushing the Soviet Union in a less prudent direction.

However, following the dissolution of the Soviet Union in 1991, Yeltsin was a strong executive with strong formal delegated powers able to implement radical (and unpopular) economic reforms under his leadership by executive decree and unconstitutional actions like his dissolution of the Duma in 1993. Kosygin, then the Soviet Premier, however, could not get the Byzantine labyrinth of the Soviet Administrative Command System to carry out the reforms that he attempted to institute. Unlike Stalin, they simply did not have his apparatus of state terror in place, which enabled Stalin to subvert the party's authority with the secret police.

Perestroika and Glasnost Introduced

Although reform stalled between 1964-1982, the generational shift gave new momentum for reform. Changing relations with the United States might also have been an impetus for reform. By the Reagan years in the United States, the abandonment of Détente would force the Soviets to greatly improve their productive capabilities in order to reciprocate the new arms build-up, especially amid talks of "star wars" missile defense. By the time Gorbachev would usher in the process that would lead to the political collapse of the Soviet Union and the resultant dismantling of the the Soviet Administrative Command System with Glasnost (political openness) and Perestroika (economic restructuring), the Soviet economy suffered from both hidden inflation and pervasive supply shortages.

Conclusions: The Post-Communist Transition

To eliminate the distortions of the ACS system and in favor of democratization and capitalism, Yeltsin's shock program, employed days following the dissolution of the Soviet Union, cut subsidies to money-losing farms and industries, decontrolled prices, moved toward convertibility of the ruble, and moved toward restructuring the largely state-owned economy. Existing institutions, however, were abandoned before the legal structures of a market economy that govern private property, oversee the financial market, and enforce taxation were functional, despite the fact that the two major components of a macroeconomy are banking system and the state budgetary system.

According to market economists, the dismantling of the administrative command system in Russia was supposed to raise GDP and living standards by allocating resources more efficiently. It was supposed to create a movement outward towards production possibilities by eliminating of central planning, substituted by decentralized market system, eliminating huge distortions through liberalization, providing incentives through privatization. Instead, over half the population is now impoverished in a country where poverty had been largely non-existent, life expectancy has dropped, and GDP has halved.

China, sustaining one of the world's highest rates of per capita GDP growth over the past two decades, in contrast, has maintained public ownership while avoiding the rigidities of planned economic decision-making since the ascendancy of Deng Xiaoping. Peasants are largely in charge of economic decision-making at the countryside (still home to the majority of China's population), not planners. In turn, they are able to spend their surplus capital on consumer goods. Socialist enterprises at the local level, known as Township and Village Enterprises (TVEs), and state-owned enterprises are also profit-maximizing and thus capable of deciding for themselves the source of inputs, the destination of outputs, the amount of funds geared toward labor allocation, and what to produce. Subsides, however, still prop up many money-losing state-owned enterprises (SOEs) which are often still overseen by planning ministries. While China has not reached the high level of industrialization and urbanization as rapidly as seen in the Soviet Union under Stalin, it seems to be avoiding the Soviet economy's record of poor productivity and rigidity seen since the late 1970s.

Thus, socialism is not necessarily the economic system that failed in the Soviet Union, but rather a system of admistrative command or planned economic decision-making. The more complex the Soviet economy grew under the auspices of the planners, the more unfeasible it simply grew to plan every economic decision in the highly industrialized nation covering such a huge geographical expanse. Planning might have transformed a nation of peasants into an industrial superpower, but it failed to supply all the goods demanded by a population growing accustomed to increasingly better living standards once the economy had achieved a high level of industrial development.

See also: economy of Russia



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