Online Encyclopedia
Economy of the Soviet Union
The economy of the Soviet Union was based on a system of state ownership and administrative planning. Like other Communist states in the former Warsaw Pact, the Soviet Union forged a centrally planned economy. 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).
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Planning
Based on a system of state ownership, the Soviet economy was controlled through Gosplan (the State Planning Commission) and Gosbank (the State Bank). The economy was directed from 1928 by a series of five-year plans. 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, and wholesale 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 the Soviet terminology, the capital goods are 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.
The Politburo sent its list of priorities for the five-year plan to 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. 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.
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.
As growth rates sank, supply shortages of food and consumer goods became more and more widespread. Perhaps belatedly, 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
Agriculture was organized into a system of state and collective farms. 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.
Conditions were best in the temperate black-earth belt stretching from the Ukraine through southern Russia into the west, spanning the extreme southern portions of Siberia.
Stalin established the USSR's system of state and collective farms when he moved to replace the NEP with collective farming in 1928, which grouped peasants into collective farms (kolkhozes) and state farms (sovkhozes).
Agricultural labor
Stalin's campaign of forced collectivization was a major factor explaining the sector's poor performance. In the new state and collective farms, outside directives failed to take local growing conditions into account. Also, interference in the day-to-day affairs of peasant life often bred resentment and worker alienation across the countryside (although some landless or poor peasants benefited from the process). The human toll was very large. In the collective farms, low labor productivity was a consequence for decades to come.
The sovkhozy tended to focus on larger scale production than the kolkhozy and had the ability to specialize in certain crops. The government tended to supply them with better machinery and fertilizers. Labor productivity (and in turn incomes) tended to be higher on the sovkhozy. Workers in state farms received wages and social benefits, whereas those on the collective farms tended to receive a portion of the net income of their farm, based, in part, on the success of the harvest and their individual contribution.
Although accounting for a small share of cultivated area, private plots produced a substantial share of the country's meat, milk, eggs, and vegetables. Private plots were among many attempts made to restructure Soviet farming. However, the weak worker incentives and managerial autonomy, which were the crux of the problem, were not addressed.
Although the Soviet Union was the world's second leading agricultural producer and ranked first in the production of numerous commodities, agriculture was a net drain on the economy.
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 was non-convertible between 1926 and 1937. Since 1937, the exchange rate was pegged by Gosbank , the state bank, 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 farmstead s (khutor s хутор), located in isolated rural areas in the Baltic states, Ukraine, Siberia and cossack lands.
Individual property
To further distinguish "capitalist" and "socialist" types of property ownership, 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).
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).
External links
- The political economy of Stalinism: evidence from the Soviet secret archives / Paul R. Gregory
- Douglas B. Reynolds, "Soviet Economic Decline: Did an Oil Crisis Cause the Transition in the Soviet Union?"
- Rafael Reuveny and Aseem Prakash, "The Afghanistan war and the breakdown of the Soviet Union," Review of International Studies, 25 (1999), 25, 693-708.
- Andre Gunder Frank, "What Went Wrong in the 'Socialist' East?"