The following research is on the subject of developed socialism in the Soviet Union. In the now almost two-year old Carter Administration we have witnessed a renewed interest in the more competitive aspects of the relationship between the United Stats and the Soviet Union. The rather crude utilization of the carrot-and-stick philosophy of relations with an adversary has focused attention on the relative strengths and weaknesses of both our respective military and economic systems. Those who seek to know the “bottom line” – and tend to oversimplify in getting there – are again asking, “Who is the stronger?”
It has been said of the development of our two nations that the United Stats is gradually becoming more socialistic and the Soviet Union more capitalistic; and some speculate that the two nations will, at some unspecified future date, meet, their differences lost in a kind of corporate sameness. The purpose of this paper is to examine the theory and development of socialism as it is practiced in the Soviet Union. We shall examine the underlying premise of Marxist economic thought as it was adapted in the Russia of the early twentieth century, the premise of a planned and centrally-directed national economy. And we shall see that such a system has both significant theoretical merits, as well as considerable drawbacks. Further, we shall see how necessity – both economic and political – has forced the leadership of the Soviet Union to modify original Marxist thought into something that perhaps even Marx himself would not recognize.
It is important to note at the outset that economic theories are just that – theories. Our understanding of what forces shape the economy of a city, a state, a nation, a world has changed significantly since the days of Adam Smith. The world has continued to evolve all the while, with our understanding lagging behind. The capitalist society of Marx’s Germany is not the same as that of modern Germany.
When Karl Marx wrote the Communist Manifesto with Fredrich Engels in 1848, or the second volume of Capital in 1885, he wrote of the inevitable class struggle in an industrialized society between the proletariat, the working men and women who made up the overwhelming majority of society, and the bourgeoisie, the minority who were the owners, in whom ownership of capital was centralized. And he thought of a Germany or Great Britain as the first and most likely place fore the communist revolution to take place. Feudal Russia, a fundamentally agrarian society, would have ranked at or near the bottom of his list.
Capitalist theory per se did not really exist. It remained for a John Maynard Keynes, in his General Theory of Employment, Interest and Money (1936) to codify the mainstream of non-Marxist economics. Keynes examined the modern industrial state on the assumption that an automatic and self-adjusting mechanism assured, under free competition, a full and harmonious use of land, labor and capital. Keynes prescribed corrective mechanisms by which a government could tinker with a private sector-dominated economy to rectify severe unemployment, recession, or other problems, and did so at a time in American history when Franklin Roosevelt was doing just such things.
Enter Marx, the “apostle of disruption,” as Bertrand Russell called him. In Capital Marx sought the inherent contradictions of capitalism – those between the assumptions and needs of a capitalist system and the well-being of its working people, for Marx was at heart a humanist – and saw them as leading to the polarization of society and the eventual downfall of the bourgeois.
In Lenin’s Russia of 1917, seemingly none of the requisite conditions for a worker revolt existed. A backward, feudal society, Russia was a nation of farmers; only 17 percent of the people were urbanized. Hence, Lenin saw the first step in the transition to a socialist society in Russia as the formation of a proletarian class. Then would follow the organization of trade unions, the experience by the proletariat of political liberty, and lastly the willingness of the ruling capitalists to “settle out of court.” Once the proletariat had assumed control of the means of production, there would be, according to Engels, the “dictatorship of the proletariat” and the eventual “withering away of the state.”
With the success of the Revolution the proletariat was, theoretically, in charge. But Lenin held off on the “withering away of the state.” Needing to consolidate his gains politically, and believing that the rapid industrialization of Russia was only possible through central control of industry and political monopoly. And, economics still being a developing science, the communists had no model that fell between the extremes of a totally free market and central directives. The “anarchy” and “spontaneity” of a market were anathema to the purposeful execution of socially determined tasks. Lenin had no alternative but to declare the Soviet government to be the repository of all economic authority. The government has consistently rejected the notion that it could play a supporting or complementary role to an autonomous private sector.
Having no model to follow (this was true for a quarter-century), the Soviets experimented, even to the point of abolishing money in favor of “labor units.” But by the end of its Civil War Russia was faced with the possibility of defeat by economic rather than military forces. Among other things, drought has seriously reduced crop production, and Lenin was forced to strike a kind of bargain with capitalism. Money was reinstated, orthodox banking practices were established, public finance was adopted, and the currency was gold-based. In March, 1921, Lenin presented the New Economic Policy (NEP) to the 10th Congress of the Community Party. Vague in its outline, NEP was a trial-and-error approach, a free mix of private and socialist doctrines aimed at getting Russia out of the hole. NEP was scrapped in 1928, due largely to the skepticism of the more dogmatic within the government, and gave way to the all-embracing era of planning which dominates the Soviet economy to this day.
The “five-year plan” was born in 1928. The third was interrupted by the Second World War, the sixth was abandoned in 1958 and replaced by the seven-year plan. Long-range coordination and direction of the process of production was and is the purpose of these plans. And since the era of planning began the underlying assumption of Soviet economic policy has been that the underlying principle of industrialization is a fast rate of growth of industry in general and heavy industry in particular, and that the fastest rates of industrial growth can only be attained through maximum capital investment in industry.
The disagreement among Soviet leaders over the ends centered on the paths to the end, the pace of growth, and the importance to be placed on various proximate ends (such as the economic status of the peasants, and the Soviet role vis-a-vis other nations). Divergence over planning centered on the extent of decentralization within the economy, the use of free market mechanisms, the importance to be attached to past economic trends in selecting future targets, and whether or not it was possible to achieve both consistency and efficiency in future economic planning. The decision reached on ends would be the strategy for development; the decision on means would be the planning procedure itself.
There were two main schools of thought in the Russia of the 1920’s. One held for the development of agriculture or of various domestic industries, and was seen as vital for sustained economic growth. Demand among the peasants was seen as crucial. Supporters of this strategy favored a low rate of investment in state-owned industries to avoid hampering other sectors of the economy.
The other school of thought held for a priority on heavy industry, and an economy geared to the rapid realization of self-sufficiency. Those within the first group advocated a sound monetary system, accurate accounting methods, and a meaningful pricing system. Many within the second group felt that prices could be manipulated by the central planners and even advocated a “wartime economy.” The second group won.
Interestingly, it was assumed in the 1920’s that planning and centralized management were synonymous, and political life was wrapped up as well. Stalin saw political and economic centralization as interconnected. The situation in his time was one of “socialism in one country” faced with “capitalist encirclement.” The mobilization of resources toward specific goals which central planning permits can lead to rapid growth, but such mobilization is not possible with a very comprehensive socialization. The rapid takeover and central direction of the economy and politics of the nation was, therefore, not only justified, it was essential. Paradoxically, the Soviet Union is the world’s most tightly controlled and centralized economy, one formed out of a marxist party takeover and based on the theory of the withering away of the state! This inversion (or perversion) was held by Stalin, Krushchev, and goes unquestioned by Brezhnev. It was codified by Krushchev, who dropped the concept of the “dictatorship of the proletariat” in favor of a “state of the whole people.”
The whole idea of a “plan” economically is teleological, that is, geared toward a specific and long-range goal. Planning is “engineering,” but the assumption that such engineering can go on on a national level is a big one. As R. W. Davies points out there are certain distinct advantages to such a system. There is a high success rate in enforcing the allocation of a high percentage of a nation’s gross national product to specific goals. Witness the trouble the United States has had in doing so. And planners are able to bring the latest technology to bear on the production process. In contrast, for example, United States steel manufacturers are using outdated production means, having preferred to turn their profits over to stockholders rather than reinvesting them in state-of-the-art technology.
Davies points out the disadvantages, which are basically two: the high cost of concentrating on producer goods (in social terms as well), and the disastrous cost of making an incorrect judgment. Further, initiative and innovation are stifled.
Recognizing these drawbacks, the Soviet leadership in the 1960’s reluctantly modified part of the steering mechanism, restricted the field of centralized decisionmaking, and spurred initiative and responsibility on the part of operational managers by stressing sales and profits.
In a free enterprise system, the problems of what to produce, when to produce it, and whom to produce it for are handled naturally (for the most part) by the supply-and-demand principles of the marketplace. The Soviet system answers most of these problems by edict, and this pervasive domination is facilitated by government control of education and the information media. However, the “how” of production has been a problem which has bedeviled the Soviets for the outset. Waste and inefficiency and a lack of consistency have yet to be satisfactorily dealt with.
The structure of the Soviet economy consists of a base of somewhat autonomous enterprises which work to carry out the plans of the government. Key outputs, employment targets, and main consumption objectives are expressed in physical terms in a kind of input-output and consumption scheme. It is brought into balance by the interlocking of three basic sets of calculations: production, manpower, and finance on an annual (as opposed to a five-year plan) basis. There are two basic plans, one for long-term expansion (or capital formation), and the yearly working plan explained above. Both types must be coordinated and subdivided time-wise (monthly, quarterly, etc.) and geographically.
The Soviet Union is a full-employment economy, and the manpower factor in its economic equation is crucial. The government maintains a complete age-sex breakdown of its people, broken down sector by sector and region by region.
The role of a budget in any business enterprise is the transfer of resources from one part to the other, and in this regard Soviet economics holds one key difference over its Western counterparts. Again, it is the interrelatedness of financial and economic plans – both are directed by the same authority. Financial plans and economic plans are put forth at the same time, and it has even become custom to present both to the same session of the Supreme Soviet.
As was stated at the outset, observers have noted growing similarities between the Soviet system and our own. Incentives and bonuses spur managers to greater productivity. And some of the “soft underbelly” of industry can be found in the Soviet Union as well. If a particular factory’s production target is expressed in tons, there is a tendency to “pad” the products’ weights. Real production capacity is understated, to make targets easier to reach. Reports are falsified, and quality is often sacrificed for quantity.
Until recently, collective farms were prohibited from owning their own heavy equipment. Machine and Tractor Stations (MTS) provided the harvesters and combines, but the lack of adequate personnel and the increased production time actually hampered government agricultural plans.
Traditionally, capital expansion in the Soviet Union was financed through non-reimbursable grants from the state’s budget. But in 1965, Premier Kosygin presented the Central Committee with a plan to finance four-fifths of all investment by state enter-prises with loans or retained profits by 1970, the rest to be paid as before. The plan was adopted, but by 1962 only half of all new investment was being financed this way.
The evolution has been inexorable. The Soviet Union of today stands, economically and technologically, in a state of imbalance. In those sectors of its economy which early strategy held to be most important, such as steel, the USS stands or the equal of the United States. The Soviets, for example, pioneered welding techniques which were used in bridge-building and exported to the United States. Soviet furnaces operate at higher temperatures than those in the United States and are able to produce higher-quality alloys. Soviet technology for casting metals in electromagnetic fields has been exported to Japan, Switzerland, and the United States.
In some respects the Soviets stand ahead of the United States. When the West sought to exert economic pressure on the Soviets by refusing to sell them industrial diamonds in the 1950’s, for example, the Soviets pioneered the development of synthetic diamonds and increased their research in high pressure physics. Today these industries rank third in Soviet cash exports. Overall, the Soviets are doing well in the raw materials and semi-finished products end of the scale, but less well in the production of finished goods. In the high-technology industries, they largely lag behind. Soviet jet engines are built of lesser-quality metals, operate less efficiently at lower temperatures, and tend to wear out sooner. However, Russia is one of the few nations to export computer software technology to the United States. More or less cut off from the economic life of the rest of the world, this “modern Sparta” is weak in the electronics and computer industries. Old-style vacuum tubes and single-throw “knife” switches can be found in their nuclear power station.
According to a CIA analysis, the Soviet economy is hampered today by four principle liabilities: (1) a declining labor force caused by a reduced birthrate; (2) declining growth of capital productivity; (3) undependable agriculture due to a harsh climate and the counterproductive Marxist production methods briefly dealt with above; and (4) a limited capacity to earn hard currency needed to buy technology and machinery abroad.
Soviet economic development is further hampered by a heavy expenditures on defense. By one estimate the Soviets spend $1.40 on defense for each dollar spent by the United States. While many saber-rattlers in the West view this as a threat to world stability, it is no doubt rooted in a distinctly Soviet cultural phenomenon. Russia, historically, has been one of the world’s most invaded countries. And “national security” has come to mean (politically as well) nothing less than the ability to withstand absolutely any kind of military threat. Further, national pride dictates that a nation which is weak(er) economically than its principle ideological rival must be superior in some other way.
Premier Kosygin, whose real power was taken over by Secretary Brezhnev early this year, has demonstrated tentative support for those Soviet economists who produced “critical appraisals” of the Soviet economy in recent journals. Improvements in management and planning were urged, along with increased efforts at elevating the drab lifestyle of Russian consumers. Family gardens, which helped feed families during World War II, have begun to spring up again as a hedge against the high cost of food, though the government looks with some disfavor at this.
In January, the Soviets announced an economic plan for this year which called for a 4.5 percent increase in industrial output, which seems to signal a swing toward caution and conservatism in Soviet planning and away from the kinds of changes which even Russian voices believe vital to development of a vigorous, competitive economy. Brezhnev appears to be sticking with the traditional heavy-industry, central-administration thinkers of the 1930’s and 1940’s.
The signals are confusing. There is no official exchange rate for the ruble, making foreign commerce difficult. And in order to raise the foreign currency needed to buy foreign goods, and at the same time preserve a positive balance of trade, the Soviets have greatly expanded their operation of jointly- and wholly-owned overseas operations. Since the early 1970’s, Soviet shipping and fishing enterprises have been highly visible and highly competitive. These have been added to. There were 28 foreign-based Soviet firms in 1970; in 1976 there were 84.
Soviet banks and insurance companies have become increasingly involved in Eurocurrency financing, and have participated in international consortium loans to Eastern Europe, Western Europe, and developing countries. Foreign-based marketing firms push Soviet exports.
Economic necessity has forced the Soviet Union to alter its socialist economic system. Theory has yielded to pragmatism. Those in positions of leadership within the Soviet hierarchy are in the 70’s and 80’s; Brezhnev himself is in ill health. Consumer pressures at home have forced some shifting in priorities away from producer goods.
The next generation of Soviet leaders is waiting in the wings, and so is the next step in the evolution of Soviet socialism.
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Michael C. Kasen, Soviet Economics (New York: McGraw-Hill, 1970), p. 8. ↑
Ibid., p. 13. ↑
Ibid., p. 25. ↑
Ibid., p. 25. ↑
Anatole G. Mazour, Soviet Economic Development: Operation Outstrip 1921-1965 (Princeton: D. Van Nostrand Co., 1967), p. 21. ↑
Nicholas Spulber, The Soviet Economy: Structure, Principles, Problems (New York: W. W. Norton, 1969), p. 213. ↑
Ibid., p. 224. ↑
Kasen, op. cit., p. 36. ↑
Ibid., p. 43. ↑
Morris Bernstein, ed. The Soviet Economy, A Bank of Readings (Homewood, IL: R. D. Irwin, Co., 1970), pp. 49-50. ↑
Kasen, op. cit. ↑
Alec Nove, The Soviet Economy, an Introduction (New York: Praeger, 1965), p. 103. ↑
Kasen, op. cit., p. 161. ↑
Foreign Policy, Number 32 (Washington, D.C.: Carnegie Endowment for Peace, Fall, 1978), p. 94. ↑
N.A., N.T. New Republic, Vol. 179, No. 5, July 29, 1978, p. 3. ↑
N.A., N.T., New Republic, Vol. 178, No. 11, March 18, 1978, p. 4. ↑
N.A., N.T. New Leader, Vol. LVI, No. 2, January 16, 1978, p. 4. ↑
N.A., N.T., Aviation Week, Vol. 107, No. 19, November 7, 1977, n.p. ↑