Economy of the Soviet Union

The economy of the Soviet Union was based on a system of state ownership and administrative planning. The Soviet Union forged the modern world's first centrally planned economy; and from a notably undeveloped position at the time of the Bolshevik Revolution, the Soviet economy developed into the most powerful in the world after that of the United States. From 1928 to 1991 the entire course of the economy was guided by series of ambitious five-year plans. The nation became among the world's three top manufacturers of a large number of basic and heavy industrial products, but lagged behind in the output of light industrial production and consumer durables. Since the dissolution of the Soviet Union (1991), all but a handful of the 15 former Soviet republics have dismantled their Soviet-style economies (see Transition from economic planning in the former Soviet Union).

Planning

Based on a system of state ownership, the Soviet economy was managed through Gosplan (the State Planning Commission), Gosbank (the State Bank) and the Gossnab (State Commission for Materials and Equipment Supply). Beginning in 1928, the economy was directed by a series of five-year plans, with a brief attempt at seven-year planning. For every enterprise, planning ministries (also known as the "fund holders" or fondoderzhateli) defined the mix of economic inputs (e.g., labor and raw materials), a schedule for completion, all wholesale prices and almost all retail prices.

Industry was long concentrated after 1928 on the production of capital goods through metallurgy, machine manufacture, and chemical industry. In Soviet terminology, the capital goods were known as group A goods, or means of production. This emphasis was based on the perceived necessity for a very fast industrialization and modernization of the Soviet Union. After the death of Stalin in 1953, consumer goods (group B goods) received more emphasis. For further details see consumer goods in the Soviet Union.

Drafting the five-year plans

Under Stalin's tutelage, a complex system of planning arrangements had developed since the introduction of the first five-year plan in 1928. Until the late-1980s and early-1990s, when economic reforms backed by Soviet leader Mikhail Gorbachev introduced significant changes in the traditional system (see Perestroika), the allocation of resources was directed by a planning apparatus rather than through the interplay of market forces.

Timeframe

From the Stalin-era through the late-1980s, the five-year plan integrated short-range planning into a longer timeframe. It delineated the chief thrust of the country's economic development and specified the way the economy could meet the desired goals of the Communist Party. Although the five-year plan was enacted into law, it contained a series of guidelines rather than a set of direct orders.

Periods covered by the five-year plans coincided with those covered by the gatherings of the CPSU Party Congress. At each CPSU Congress, the party leadership presented the targets for the next five-year plan. Thus, each plan had the approval of the most authoritative body of the country's leading political institution.

Guidelines for the plan

The Central Committee of the CPSU and, more specifically, its Politburo, set basic guidelines for planning. The Politburo determined the general direction of the economy via control figures (preliminary plan targets), major investment projects (capacity creation), and general economic policies. These guidelines were submitted as a report of the Central Committee to the Congress of the CPSU to be approved there.

After the approval at the congress, the list of priorities for the five-year plan was processed by the Council of Ministers, which constituted the government of the USSR. The Council of Ministers was composed of industrial ministers, chairmen of various state committees, and chairmen of agencies with ministerial status. This committee stood at the apex of the vast economic administration, including the state planning apparatus, the industrial ministries, the trusts (the intermediate level between the ministries and the enterprises), and finally, the state enterprises. The Council of Ministers elaborated on Politburo plan targets and sent them to Gosplan, which gathered data on plan fulfillment.

Gosplan

Main article: Gosplan

Combining the broad goals laid out by the Council of Ministers with data supplied by lower administrative levels regarding the current state of the economy, Gosplan worked out, through trial and error, a set of preliminary plan targets. Among more than twenty state committees, Gosplan headed the government's planning apparatus and was by far the most important agency in the economic administration. The task of planners was to balance resources and requirements to ensure that the necessary inputs were provided for the planned output. The planning apparatus alone was a vast organizational arrangement consisting of councils, commissions, governmental officials, specialists, etc. charged with executing and monitoring economic policy.

The state planning agency was subdivided into its own industrial departments, such as coal, iron, and machine building. It also had summary departments such as finance, dealing with issues that crossed functional boundaries. With the exception of a brief experiment with regional planning during the Khrushchev era in the 1950s, Soviet planning was done on a sectoral basis rather than on a regional basis. The departments of the state planning agency aided the agency's development of a full set of plan targets along with input requirements, a process involving bargaining between the ministries and their superiors.

Planning ministries

Economic ministries performed key roles in the Soviet organizational structure. When the planning goals had been established by Gosplan, economic ministries drafted plans within their jurisdictions and disseminated planning data to the subordinate enterprises.

The planning data were sent downward through the planning hierarchy for progressively more detailed elaboration. The ministry received its control targets, which were then disaggregated by branches within the ministry, then by lower units, eventually until each enterprise received its own control figures (production targets).

Enterprises

Enterprises were called upon to develop the most detailed plans covering all aspects of their operations so that they could assess the feasibility of targets, thus opening up the most intense bargaining phase in the planning process. As the individual enterprise drafted its detailed production plans, the flow of information was reversed; enterprise managers and even rank-and-file workers often participated in the planning process at this level. According to Soviet reports, roughly 110 million Soviet workers took part in discussions in the final period of state planning in the late-1980s and early-1990s.

The enterprises' draft plans were then sent back up through the planning ministries for review. This process entailed intensive bargaining, with all parties seeking the target levels and input figures that best suited their interests.

Redrafting the plan

After this bargaining process, Gosplan received the revised estimates and re-aggregated them as it saw fit. Then, the redrafted plan was sent to the Council of Ministers and the Party's Politburo and Central Committee Secretariat for approval. The Council of Ministers submitted the Plan to the Supreme Soviet and the Central Committee submitted the plan to the Party Congress, both for rubber stamp approval. By this time, the process had been completed and the plan became law.

Approval of the plan

The review, revision, and approval of the five-year plan were followed by another downward flow of information, this time with the amended and final plans containing the specific targets for each sector of the economy. At this point, implementation began and was largely the responsibility of enterprise managers.

Economic development

Starting in 1928, the five year plans began building a heavy industrial base at once in an underdeveloped economy without waiting years for capital to accumulate through the expansion of light industry, and without reliance on external financing. The country now became industrialized at an unbelievable pace, perhaps surpassing Germany's pace of industrialization in the nineteenth century and Japan's earlier in the twentieth. After the reconstruction of the economy (in the wake of the destruction caused by the Russian Civil War) was completed, and after the initial plans of further industrialisation were fulfilled, the explosive growth slowed down, but still generally surpassed most of the other countries in terms of total material production (GNP) until the period of Brezhnev stagnation in the second half of the 1970s.

Industrialization came with the extension of medical services, which improved labor productivity. Campaigns were carried out against typhus, cholera, and malaria; the number of physicians increased as rapidly as facilities and training would permit; and death and infant mortality rates steadily decreased.

As weighed growth rates, economic planning performed very well during the early and mid-1930s, World War II-era mobilization, and for the first two decades of the postwar era. The Soviet economy became the largest and the strongest after that of the United States. The Soviet Union became the world's leading producer of oil, coal, iron ore, cement, and steel; manganese, gold, natural gas and other minerals were also of major importance.

Growth slowed after 1960, but this was considered characteristic of a mature, industrialized economy at the time. However, the planning ministries had failed to loosen their control of the enterprise level in time to stem the prolonged stagnation of the 1970s and 1980s, which showed signs of a chronic problem.

The Soviet planned economy was not tailored at a sufficient pace to the demands of the more complex modern economy it had helped to forge. As the economy grew, the volume of decisions facing planners in Moscow became overwhelming. The cumbersome procedures for bureaucratic administration did not enable the free communication and flexible response required at the enterprise level for dealing with worker alienation, innovation, customers, and suppliers.

Constant lowering of prices by the planning agencies led to an unfortunate side effect. As the prices dropped below the equilibrium point, people were always buying all available stock, leading to "empty shelves". The actual food consumption was high, but psychologically the empty shelves proved to be very hard to endure. Even though per capita consumption of most products (with the exception of meat) in Soviet Union was higher than in the United States, people were unhappy. In 1988 consumption of milk and milk products in the USSR was 356 kg per capita (260 kg in the USA), but 44% of the Soviet people said when polled that they were not consuming enough milk. In Armenia, where people consumed 480 kg of milk (1989) 62% of the people were not satisfied with the consumption levels. The situation with most other products (including both food and consumer goods) was similar (figures quoted according to Kara-Murza).

Calls for greater freedom for managers to deal directly with suppliers and customers were gaining influence among reform-minded Communist cadres during the mid-1970s and 1980s. Since the dissolution of the Soviet Union, all but a handful of the 15 former Soviet republics scrapped their Soviet-era systems of centralized planning and state ownership, with mixed results (see History of post-Soviet Russia).

Agriculture

Main article: Agriculture of the Soviet Union.

Agriculture was organized into a system of collective farms (kolkhozes) and state farms (sovkhozes). Organized on a large scale and highly mechanized, the Soviet Union was one of the world's leading producers of cereals, although bad harvests (as in 1972 and 1975) necessitated imports and slowed the economy. The 1976-1980 five-year plan shifted resources to agriculture, and 1978 saw a record harvest. Cotton, sugar beets, potatoes, and flax were also major crops.

However, despite immense land resources, extensive machinery and chemical industries, and a large rural work force, Soviet agriculture was relatively unproductive, hampered in many areas by the climate (only 10 percent of the Soviet Union's land was arable), and poor worker productivity.

Foreign trade and currency

Largely self-sufficient, the Soviet Union traded little in comparison to its economic strength. However, trade with noncommunist countries increased in the 1970s as the government sought to compensate gaps in domestic production with imports.

In general, fuels, metals, and timber were exported. Machinery, consumer goods, and sometimes grain were imported. In the 1980 trade with the Council for Mutual Economic Assistance (COMECON) member states accounted for about half the country's volume of trade.

The Soviet currency (ruble) was non-convertible after 1932 (when trade in gold-convertible "czervonetz", introduced by Lenin in NEP years was suspended) until the late eighties. It was impossible (both for citizens and state-owned businesses) to freely buy or sell foreign currency even though the "exchange rate" was set and published regularly. Buying or selling foreign currency on a black market was a serious crime until late eighties. Individuals who were paid from abroad (for example writers whose books were published abroad) normally had to spend their currency in a foreign-currency-only chain of state-owned stores "Beryezka" (a "Birch-tree"). Once a free conversion of currency was allowed, the exchange rate plummetted from its official values by almost a factor of 10.

Overall, the banking system was highly centralized and fully controlled by a single state-owned Gosbank, responsive to the fulfillment of the government's economic plans. Soviet banks furnished short-term credit to state-owned enterprises.

Forms of property

There were two basic forms of property in the Soviet Union: individual property and collective property. These differed greatly in their content and legal status. According to communist theory, capital (means of production) could not be individually owned, with certain negligible exceptions. In particular, after the end of a short period of the New Economic Policy and with collectivization completed, all industrial property and virtually all land were collective.

Land in rural areas was allotted for housing and some sustenance farming, and persons had certain rights to it, but it was not their property in full. In particular, in kolkhozes and sovkhozes there was a practice to rotate individual farming lots with collective lots. This resulted in situations where people would meliorate, till and cultivate their lots carefully, adapting them to small-scale farming, and in 5-7 years those lots would be swapped for kolkhoz ones, typically with exhausted soil due to intensive, large-scale agriculture. There was an extremely small number of remaining individual farmsteads (khutors хутор), located in isolated rural areas in the Baltic states, Ukraine, Siberia and cossack lands.

Individual property

To distinguish "capitalist" and "socialist" types of property ownership further, two different forms of individual property were recognized: private property (частная собственность, chastnaya sobstvennost) and personal property (личная собственность, lichnaya sobstvennost). The former encompassed capital (means of production), while the latter described everything else in a person's possession. This distinction has been a source of confusion when interpreting phrases such as "socialism (communism) abolished private property"; one might conclude that all individual property was abolished, when this was in fact not the case.

Collective property

There were several forms of collective ownership, the most significant being state property, kolkhoz property, and cooperative property.

The most common forms of cooperative property were housing cooperatives (жилищные кооперативы) in urban areas, consumer cooperatives (потребительская кооперация, потребкооперация), and rural consumer societies (сельские потребительские общества, сельпо).

Finances

Main article: Finances of the Soviet Union

Further reading

• Paul Gregory and Robert Stuart, Soviet and Post Soviet Economic Structure and Performance 7th edition (Boston: Addison Wesley, 2001).
• Marshall Goldman, What Went Wrong With Perestroika (New York: Norton, 1991).
• Marshall Goldman, Lost Opportunity: Why Economic Reforms in Russia Have Not Worked (New York: W. W. Norton, 1994).
• Moshe Lewin, The Making of the Soviet System (New Press, 1994)
• Mary McCauley, Soviet Politics 1917-1991 (Oxford University Press, 1992).

Related articles

• Economy of post-Soviet Russia
• History of the Soviet Union
• History of post-Soviet Russia

References

• Soviet Civilization: from the great victory till our time, S. Kara-Murza, 2004.

External links

• The political economy of Stalinism: evidence from the Soviet secret archives / Paul R. Gregory (http://assets.cambridge.org/0521826284/sample/0521826284WS.pdf)
• Douglas B. Reynolds, "Soviet Economic Decline: Did an Oil Crisis Cause the Transition in the Soviet Union?" (http://www.hubbertpeak.com/reynolds/SovietDecline.htm)
• Rafael Reuveny and Aseem Prakash, "The Afghanistan war and the breakdown of the Soviet Union," Review of International Studies, 25 (1999), 25, 693-708 (http://faculty.washington.edu/aseem/afganwar.pdf).
• Andre Gunder Frank, "What Went Wrong in the 'Socialist' East?" (http://rrojasdatabank.info/agfrank/what_went_wrong.html)
• "The five year plan and its effect on famine in Ukraine." (http://www.unitedhumanrights.org/Genocide/Ukraine_famine.htm)