The Soviet Planning Economists

Soviet Ten-Rouble Note.

 

The October Revolution of 1917 brought the Bolshevik Party under Vladimir Illyich Lenin to power in Russia.  As Karl Marx had given very few details of what a "dictatorship of the proletariat" should look like, the Russian communist leaders had to improvise.  In his original plans, Lenin had envisaged a post-Revolutionary Russia which would be "in between" capitalism and socialism.  He took as his model the German Bismarckian economy, adapted to Russia in the 1890s by Sergei Witte, where the "commanding heights" of the economy (banking, coal, iron, petroleum, heavy industry, railroads, etc.) were in the hands of a few monopolists, while the rest of the economy (notably agriculture) remained in the hands of small private entrepreneurs.  The only difference Lenin hoped to introduce was that the Russian State would take the role of the private monopolists in controlling the commanding heights.

However, events would soon overwhelm Lenin's plans.  In the aftermath of the revolution -- and against Lenin's recommendation -- enthusiastic Russian workers (who interpreted the revolution in anarcho-syndicalist terms) had spontaneously taken control of many of the factories and businesses that, in Lenin's original economic plan, should have stayed in private hands.   Lenin reluctantly acquiesced to the workers' committees -- so long as war continued and the need to keep the factories going was paramount.

The Bolsheviks' immediate priority was to make good on their promise of "Peace, Land and Bread".  The first was done by the hastily-drafted Peace of Brest-Litovsk with Germany, pulling Russia out of the First World War -- although war would return swiftly in the form of a brutal four-year civil war between the "Reds" and the "Whites".  As a result, from 1917 to 1921, the new Soviet authorities operated on the principle of a "war economy" -- State control of industry, channeling of capital to military purposes, forced requisitions and expropriation of surpluses, tight price controls, rationing, etc.  A State Planning Committee (Gosplan) was set up to coordinate the war industries.  Strumilin was the principal engineer of the "War Communism".  However, no national, long-term economic plan was drawn up in this period.   

Once the civil war began fading away in 1920, the debate over the shape of the Soviet economy re-emerged.  What was at stake now was not so much ideology, but a more pragmatic problem: the rapid industrialization of Russia.  All parties agreed this was the urgent priority, the puzzle was how to bring it about.  This had already been a central issue of Tsarist times.  Russia was an overwhelmingly agricultural country with a massive amount of rural overpopulation. Tsarist-era industrialization efforts under Sergei Witte in the 1890s had yielded some fruit, but then the First World War intervened.  Besides the destruction of industry and infrastructure from the disruptions and fighting of the war and civil war, the anarchy of land redistribution in 1917-18 had led to a massive out-migration from the cities back to the rural areas.  The Russian economy seemed to be back at square one:

Two broad groups in the Soviet leadership can be defined.  One (led by Trotsky) demanded the continuation of "War Communism" and thus a leap into a full, peacetime socialist centrally-planned economy.   The other group (led by Bukharin) polished Lenin's old Witte-like program -- with the Soviet government nationalizing the commanding heights only and relying on private entrepreneurs and markets to do the rest.   Lenin, of course, sided with Bukharin.  In 1921, "War Communism" was terminated and the "New Economic Policy" (NEP) inaugurated.  Peasants were allowed to sell their surpluses on the market and private businessmen were allowed to set up small industrial, commercial and financing concerns. 

Nikolai Bukharin's long-term plan of Russian industrialization envisaged stimulating an internal market so that consumer and industrial goods production could proceed apace together, in a balanced terpsichory.  The basic idea was that with growth of prosperity in the countryside, and the realization of agrarian surpluses, would simultaneously lower living costs in the cities and provide the internal market for growth of consumer goods, thereby allowing industry to expand and inducing migration to the cities, thereby draining the countryside of excess population. Bukharin conceded that meant industrialization "at a snail's pace".  As the NEP advanced, agrarian incomes rose as great surpluses were indeed produced, but the greater part of that agricultural output remained in the countryside, with only a very small portion of the surplus making it to market to exchange for manufactured goods.   Bukharin was convinced that rural productivity would rise to the point where they would cross some threshold to finally form an internal consumer market and spark industry.

The NEP continued after Lenin's death 1924.  Joseph Stalin, at that point merely the spokesman of the Soviet administrative and managerial elite, lent his support to Bukharin's program, which by 1925 seemed to be a success.  But things began to falter after that.  The criticisms of Trotsky and his economics guru Preobrazhensky, grew shriller.  Surpluses were not forthcoming,  Russian industry was not budging.  Preobrazhensky proposed to short-circuit the NEP's slow delicate terpsichory with nothing short of state takeover of the agricultural sector and forced labor, directly or indirectly, to drain the excess population from the countryside and accelerate the process.  Bukharin urged patience, but patience was increasingly in short supply in the Soviet communist leadership as the 1920s advanced.  Bellicose noises emanating from Japan fanned fears of Japanese adventurism, and raised alarmist concerns about the state of the Soviet armaments industry that even NEP well-wishers could not ignore. State requisitions increased and state procurement prices and market prices began diverge - which did not improve the situation, as peasants now had even less incentive to deliver.  Tales spread of rich rural farmers - kulaks - deliberately withholding surpluses, holding "feasts" in the villages, rather than delivering them unto urban markets. The notion that something more forceful must be done was gaining ground.

Everything changed in 1928, after Stalin drove Trotsky into exile.  Hitherto supportive, Stalin turned against the NEP and took on the forceful recommendations of Preobrazhensky et al.  The NEP was declared defunct, and the First Five Year Plan launched in 1929, introducing large-scale collectivization of agriculture.  The First Five Year Plan however, depended on optimistic harvest forecasts, and did not account for the sudden disruption of agrarian life. The process of collectivization turned into a brutal ordeal, a virtual civil war broke out in the countryside.  Far from providing the urgent State procurement needs for industrialization, production plummeted and the shortfalls actually increased, to the point of creeping hunger, reaching its height in the horrific famine of the Winter of 1932-33.  To combat resistance to collectivization, the Soviet state erected a terror apparatus - the secret police,  OGPU, hitherto a specialized branch dealing with cases of counter-espionage, became a massive, powerful new institution, with increasing responsibility and powers, in the end managing major agrarian and industrial concerns powered by forced labor.

As the immediate chaos and famine resulting from the massive displacement of people and resources began finally to subside, a Second Five Year Plan was launched in 1933.  It did not change the goals too much - it continued to assign priority to heavy industry, but there were no new disruptions - the battle for the countryside had already been "won", there was nothing to break anymore.  Except politically.  The heavy-handed First Five Year Plan had prompted criticism inside the party of Stalin's leadership, and mumblings were afoot to have him replaced.  This reached its height at the party congress of 1934, where the rank-and-file seemed to prefer anybody else to Stalin, with Leningrad party leader S.N. Kirov emerging as the favorite.  The assassination of Kirov nine months later - with or without Stalin's complicity - was the excuse for opening a new phase of terror, this time aimed at purging the party of "subversives" and "plotters".  The purges were also used to publicly find scapegoats for the excesses and disasters of the First Plan, deflecting blame from the plan or Stalin himself.  Nonetheless, the period of  Stalin's purges between 1936 and 1939 had no apparent economic motivation - they were overtly political, merely to secure Stalin's position.  As such, while some apologists have excused the mass death of 1929-1933 as inadvertent and same might say inevitable consequence of economic objectives, there was nothing economic, inadvertent or necessary about the mass deaths of 1936-39, which cost additional millions of lives.   The industrialization of Soviet Russia was already in motion, industrial output doubled from 1932 to 1937, and tripled in some heavy sectors like steel.

The Soviet economic example had an impact outside the Soviet Union.  The human cost of Soviet industrialization was only vaguely perceived outside of Russia.  The Soviet Union had seemed to be unaffected by the Great Depression of the 1930s, and many saw central planning as a solution to problems of mass unemployment.  The apparent "success" of the Soviet Union, at least its immunity to the problems overcoming Western capitalist economies, would form the basis of the Socialist Calculation debate.

The new industrial basis of the Soviet Union allowed it to survive, confront and eventually prevail over the Nazi German invasion of World War II.  By the 1950s, Soviet standards of living had improved enormously, comparable to middle-income Western countries.   The Soviet Union seemed to have been able to solve unemployment, give its workers decent wages, but also access to amenities such as universal health care, and the like.  There remained, however, the problem of consumer goods - the Soviet emphasis on heavy industry had left consumer goods sector relatively underdeveloped, so while people had wages, there were not many goods to buy with them.  The wage-goods gap would persist in centrally-planned Soviet Union, remaining a gnawing constant of Soviet life down to the 1980s.

Perhaps the most significant lesson outsiders took away was that it was a possible for a large, poor, overpopulated, agrarian country to industrialize rapidly, and even become a world power, in a few short years of careful central planning.  Outsiders began to think of Soviet industrialization as a successful model of economic development, particularly for large poor countries, such as China and India, emerging in the post-war decolonization period.   Indeed, it can be argued that the Soviet example was the impetus for the rise of development economics as a whole.  Hitherto neglected in western economics canons, the Soviet example challenged economists to come up with alternative models of development, models that worked and did not require full-blown communism.

Inside the Soviet Union, planning theory became more refined.  In the 1920s, the house journal of  Gosplan, Planovoe khozyaistvo (The Planned Economy), edited by N.A. Kovalevsky, was brimming over in articles related to socialist planning.  Gosplan was focused on two strands of research: the practical formulation of the immediate (first) Five-Year Plan and a more academic debate on longer-term economic strategy (the so-called "General Plan").  Soviet planning economics developed rapidly after the 1930s, addressing technical problems related to socialist planning at a time when computing was done largely by pencil and paper.  Techniques such as linear programming were developed independently by Soviet planning economists in the 1950s and 1960s.  There was the tricky matter of Marxian economics - namely that as the Soviet Union was ideologically built on Marx's theory, then its planning models and techniques had to be consistent with Marxian economic concepts.  As a result, planning theory was not always a purely technical matter, but had to be developed, or at least be articulated, with that theoretical constraint. 

 

 

 HET

 

Resources on Soviet Planning

  • "Rent for Revenue: Open letter to Mikhail Gorbachev", 1990 -- petition of prominent Western economists.
  • "The Contradictions of Socialist Economies: A Marxist interpretation" by Mario Nuti [pdf]
  • "The Rural Urban Wage Gap in the Industrialization of Russia, 1885-1913" by Leonid Borodkin and Carol Scott Leonard, 2000 [pdf]

 


All rights reserved, Gonçalo L. Fonseca
 

 

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