Soviet Economic Planning

Historical and İnstitutional background of the Soviet Economic System

Soviet Economic Plan

The Union of Soviet Socialist Republics has now existed for more than 50 years—a relatively long time for political and economic experiments that arise in revolutionary circumstances. The fact that Soviet Russia and Japan are the two nations to establish modern industrial economies outside the established framework of Western cultural values and economic institutions commands our attention. The additional fact that the Russians have per­formed this feat while proclaiming their loyalty to the views of Karl Marx creates an opportunity to study the link between ideology and the devel­opment of institutions based on that ideology. This chapter will establish the historical and institutional background for our subsequent study of how the Soviet economic system operates today.

Russian Economic History

The Economy of Czarist Russia

Russia's economy was, and to a considerable extent still is, agriculturally oriented. We begin our historical survey with a significant change in an agrarian institution—the emancipation of the peasant serfs in 1861. Serfdom was established in the seventeenth century. As a quid pro quo in return for obligations of service to the Czar, the landlord class claimed services from their peasant cultivators that amounted to virtual slavery. Even after formal noble obligations to the Czar ended in 1762, landlord-peasant relations were not significantly altered until the Emancipation Edict.

The details of land transfer at the time of emancipation were to have profound effects on the subsequent development of the Russian economy up to and long after the Revolution of 1917.

Russia Economic History

The emancipation involved, first of all, a determination of the land area to be given over by the landowner to the peasants for permanent use. There is no question that over wide parts of the country (and particularly in the black-earth belt) the peasants received a good deal less land than had been customarily assigned to them before the reform. Second, there was the question of the magnitude of the quitrents (obrok) to be paid by the peasants as compensation for land allotments....

It might be argued that the two features of the Russian reform just mentioned should have provided a favorable climate for subsequent industrialization; the inadequacy of the peasants' landholdings in con-juncton with the considerable financial obligations imposed upon their households could have been expected to favor a flight from the country­side and thus to provide a large reservoir of labor supply to the nascent industry. Such might have been the consequences indeed, if the reform and the later legislative measures had not erected con­siderable barriers to land flight by strengthening the obshehina, the village commune, wherever it existed.

Russian Economy History

The labor-supply bottleneck was not significantly dealt with until the Slotypin reforms of 1906-1911, which ultimately abolished redemption payments for land and allowed peasants freedom of movement. Russia meanwhile chose an alternative path to modernization—technological bor­rowing from abroad—a strategy the Soviet government has also relied on in critical periods of economic change. During the 1890s a program of rail­road building, foreign borrowing (particularly from France), and tariff pro­tection for heavy industry produced a spurt of industrialization that resuited in an impressive doubling of the industrial sector in that decade. Industrial growth continued on a less steady and rapid basis up to the out­break of World War I. The cumulative product of these developments was an economy that was considerably more sophisticated than many less de­veloped countries today. Despite the destruction and disorganization brought about by the war effort in Russia, the Soviet regime inherited a dual economy consisting of a huge agricultural sector combined with a much smaller, but more modern, industrial sector.

Economic Experiments of the First Postrevolutionary Decade

The end of the Czarist regime came amid food riots, troop mutinies, and peasant land seizures. The provisional government that assumed authority in 1917 was overwhelmed by the continuing deterioration of the economy, and the Bolsheviks, led by Lenin, in turn seized political control. A govern­ment espousing the principles of Marx was for the first time in a position of actual authority!

Marx had consistently belittled "Utopian" socialists who drew up de­tailed blueprints for operating a socialist society. At any rate, his theory predicted that capitalism would be overthrown first by the proletariat of a modern industrial nation, not a relatively backward peasant agrarian econ­omy like Russia. It was the task of Lenin and his followers to develop a strategy for imposing the "dictatorship of the proletariat" on a country whose own proletariat was in the initial stages of formation and in which economic and administrative collapse and civil war demanded immediate remedies.

The combination of ideological principles and practical necessities produced the period of War Communism between 1918 and 1921 in the Soviet Union.

During this period the Soviet Government succeeded in gaining control of the 'commanding heights' of the national economy. Large-scale industries, transport, banks, foreign trade, the main branches of the distributive system, municipal services, and even large private houses were taken over by Central Government institutions or by their local branches or local Soviets.
This series of nationalizations made a virtue of the necessity of centralizing administration of industry in the absence of previous owners and managers. Industrial output and productivity continued to fall, however, until 1921;

the situation was even worse in agriculture, where, having given former estates to peasants, the government found that it had no means of securing food to feed the cities. Peasant cultivators responded to government edits requisitioning supplies or imposing socialism on the agricultural sector by cutting back acreage sown and slaughtering livestock. "As long as the city had nothing to offer him in return for his labor (the peasant) kept produc­ing a bare minimum to stay alive and cared little about the fate of the city-dweller or the triumph of world revolution."

It became distressingly evident that the government had neither the authority nor the ability to operate the economic institutions it had seized under War Communism and that a retreat to less extreme measures was in order. Under these conditions the New Economic Policy (NEP) era came into being with slogans like "Learn to trade."
The retreat was signaled by placing grain taxes at less than confisca­tory levels and by leasing back smaller industrial establishments to private entrepreneurs while retaining the "commanding heights" of large-scale in­dustry, banking, and foreign trade. Famine and shortages of fuel and raw materials plagued the early years of the NEP experiment, but 1923 brought a new problem—the "scissors crisis" in agriculture:

From a situation in which the terms of trade between village and town were too favourable to the former—though under conditions of famine the peasants were unable to take much advantage of this—the changed circumstances led to an opposite distortion: a rapid move in relative prices in a direction unfavourable to the village, so unfavourable indeed as to discourage agricultural marketings and to constitute a menace, since the precarious political stability of the regime depended on peasant acquiescence, or at least a decision on their part not to rebel.

The NEP system was a mixed economy with considerable private activity in both agriculture and industry. Central planning was confined mainly to strategic heavy industries; consumer-goods firms in the national­ized sector were grouped into trusts that planned their own output with little central interference.

Even as the New Economic Policy was stabilizing the economy and facilitating the return of production to something resembling pre-1914 levels, a debate was building over the future direction economic activity should take. The debate centered on the twin problems of agricultural procurement and speeding up industrialization; it was conducted in an atmosphere of political intrigue following the illness and eventual death of Lenin in 1924. Economists of many ideological persuasions contributed to the arguments, and it was their fate to rise or fall with the fortunes of political factions that espoused corresponding economic programs. The gradualists argued that practical necessity required the encouragement of better-off peasants as a source of foodstuffs and industrial raw materials; therefore, they argued, the pace of industrialization must be balanced by the limits to growth in the private agricultural sector. They believed that attempts to squeeze the richer peasants (kulaks) would be disastrous eco­nomically and politically because of the danger of open revolt in the coun­tryside, where Party control was weak or nonexistent.

The opposing faction was dismayed by the entrepreneurial vigor of "Nepmen" traders and kulaks who responded to opportunities for personal enrichment created by the New Economic Policy. They favored an imme­diate program of rapid industrialization as necessary for military and eco­nomic survival, and argued that peasant agriculture was the only possible source of resources to achieve this goal. Stalin began as a member of the gradualist camp, but as we will see, he was soon to rule over a drastically more rapid and confiscatory program than those envisioned by the original opposition to the gradualist position.

From 1926 on, the private trading sector of the economy was pro­gressively reduced through such devices as higher transport charges for private goods and discriminatory taxes. Central planning grew apace with the decline of private trading. A 1927 decree called for the creation of a comprehensive economic plan, a move made necessary by the rapid in­crease in heavy investment. This move, in turn, necessitated reinstatement of compulsory farm deliveries to the central government. "It (arbitrary confiscation) upset once and for all the delicate psychological balance upon which the relations between party and peasants rested, and it was also the first time that a major policy departure was undertaken by Stalin person­ally, without even the pretence of a central committee or politbureau deci­sion."8 These two developments—the beginnings of comprehensive plan­ning and coercion of the peasantry—mark the beginning of a new era of Soviet economic planning in the late 1920s.

Collectivization and Five-Year Plans

The years between 1929 and 1934 are perhaps the most dramatic in the varied historical pattern of the Soviet economy. Confronted with the re­luctance of independent peasants to supply grain at terms advantageous to the central government, Stalin daringly ignored Lenin's admonition to retain the loyalty of peasant cultivators by plunging headlong into reorgan­izing all agriculture into state-operated farms or into producers' collectives. The more prosperous peasants, or kulaks, were singled out as traitors, and some five million were deported or killed for resisting. The brutality of collectivizing agriculture so abruptly remains a blot on the Soviet economic record that no series of subsequent achievements can completely erase. The machinery created for the forceable collection of grain in 1928 was expanded. Farmers facing collectivization destroyed their crops and killed livestock rather than hand them over to authorities. The goal of rapidly absorbing all private lands was pushed, even though more gradual methods that left peasants some possessions might have worked better. Officials feared being labeled "deviationists" if they appeared unzealous in their work.

Local officials announced: "He who does not join a kolkhoz (collective farm) is an enemy of Soviet power." They had "either to achieve 100 per cent in two days or hand in your party card." The assault was launched, regardless of lack of preparation, regardless of local condi­tions, of opinion, of everything except the great campaign. There was, one can see, some logic against going slow, peasants who knew what was coming would react by cutting down production, perhaps de­stroying their tools and livestock. Better get it over with, and before the spring sowing.

The agricultural sector became demoralized and disorganized. The crop year was disrupted, and considerable output was lost through late planting or lack of harvesting manpower and tools. State procurement levels, if obeyed, left peasants and their livestock little to eat. Directions on how to organize collective units were lacking, and there was no clear-cut incentive system to encourage individual effort within the collective.

The Party exerted control over collective farms through Machine Tractor Stations (MTS), which centralized ownership of agricultural equip­ment. The urban officials sent out to administer them added little to the sum total of available technical expertise, but they were the eyes and ears of the Party in the countryside. Each MTS serviced between 60 and 300 collective farms, receiving grain in payment for their services.

Meanwhile, a less harrowing but not insignificant narrative of high-pressure development with attendant sacrifices in human terms was unfold­ing in the industrial sector. The targets of the first five-year plan period were revised upward to extremely unrealistic levels, resulting in bottlenecks and delivery failures.

The first plan called for a massive program of industrial investment. Modern chemical, metallurgical, and electrical complexes were developed from scratch. Machinery production made especially impressive gains in the years between 1927 and 1932. Many foreign technicians, some at­tracted by belief in the Soviet experiment and more by employment oppor­tunities not available in the West during the Great Depression, came to Russia to build and operate the new facilities. As in the 1890s and the 1960s and 1970s, the effort to catch up rapidly was supplemented by tech­nological borrowing from more advanced nations. In many ways this is a reasonable way to deal partially with a general lack of incentive for tech­nological innovation at the enterprise level under the Soviet system.

The establishment of the central planning mechanism and the collec­tivization of agriculture produced, by the mid-1930s, a set of economic institutions fundamentally similar to those prevailing in the Soviet Union today. The political upheavals of the Stalinist purges of the late 1930s, the physical destruction of World War II, and above all, the increase in scale and complexity brought about by 40 years of rapid and relatively stable growth have occurred within the basic framework whose creation we have been describing. Until very recent times, the high rates of investment that propelled the modernization process have been achieved by holding back on the increase in real purchasing power for consumers. If there is a lesson for currently less developed nations in the Russian experience, it is perhaps - to realize the magnitude of sacrifices to be imposed on the total population in order to sponsor massive investment programs when foreign capital is lacking. It is a lesson those nations will probably not relish learning.

We will have more to say about the long-term rate of economic growth in the Soviet Union in a later chapter. Our attention now turns to a description of the economic institutions on which the present system of economic planning is based.