Soviet Economy

[Black Star]

I have been reading about the history of the Soviet Union more intensely of late, and one thing I've never been able to entirely conceptualize is the stagnation that began in the mid-70s. Why did this happen? How could it have been prevented?

Thank you in advance, comrades.

[FSL]

Whether the economy grows depends on mainly 3 things: Level of technology, amount of labor, amount of capital.

Advances in technology will mean growth. More workers will mean growth (up to a point at least). More factories or land that can be cultivated also results in growth.

Assuming there aren't any major technological advances (though production methods or machinery are probably always improving, even at a slow pace) it comes down to workers and investments.

Investments that create capital are the part of what was produced but not directly consumed. If you 're cutting down trees to get wood, you could use 90% of that wood to make furniture and 10% of that to build a windmill. That 10% is invested. You need enough investments to make up for the depreciation of capital (machines that stop working etc) and to make sure the capital/laborer ratio remains at acceptable levels (population at least until recently was always on the rise so to keep it at a fixed value you had to increase investments)


Stalin in the "Economic problems of the USSR" mentions the law of value and how it was relevant in the country's economy. According to him, it "teaches our executives systematically to improve methods of production, to lower production costs, to practise cost accounting, and to make their enterprises pay". What the law of value didn't do in the Soviet Union was mentioned later.





Totally incorrect, too, is the assertion that under our present economic system, in the first phase of development of communist society, the law of value regulates the "proportions" of labour distributed among the various branches of production.

If this were true, it would be incomprehensible why our light industries, which are the most profitable, are not being developed to the utmost, and why preference is given to our heavy industries, which are often less profitable, and some-times altogether unprofitable.

If this were true, it would be incomprehensible why a number of our heavy industry plants which are still unprofitable and where the labour of the worker does not yield the "proper returns," are not closed down, and why new light industry plants, which would certainly be profitable and where the labour of the workers might yield "big returns," are not opened.

If this were true, it would be incomprehensible why workers are not transferred from plants that are less profitable, but very necessary to our national economy, to plants which are more profitable - in accordance with the law of value, which supposedly regulates the "proportions" of labour distributed among the branches of production.

Obviously, if we were to follow the lead of these comrades, we should have to cease giving primacy to the production of means of production in favour of the production of articles of consumption. And what would be the effect of ceasing to give primacy to the production of the means of production? The effect would be to destroy the possibility of the continuous expansion of our national economy, because the national economy cannot be continuously expanded with-out giving primacy to the production of means of production.

These comrades forget that the law of value can be a regulator of production only under capitalism, with private ownership of the means of production, and competition, anarchy of production, and crises of overproduction. They forget that in our country the sphere of operation of the law of value is limited by the social ownership of the means of production, and by the law of balanced development of the national economy, and is consequently also limited by our yearly and five-yearly plans, which are an approximate reflection of the requirements of this law.
Some comrades draw the conclusion from this that the law of balanced development of the national economy and economic planning annul the principle of profitableness of production. That is quite untrue. It is just the other way round. If profitableness is considered not from the stand-point of individual plants or industries, and not over a period of one year, but from the standpoint of the entire national economy and over a period of, say, ten or fifteen years, which is the only correct approach to the question, then the temporary and unstable profitableness of some plants or industries is beneath all comparison with that higher form of stable and permanent profitableness which we get from the operation of the law of balanced development of the national economy and from economic planning, which save us from periodical economic crises disruptive to the national economy and causing tremendous material damage to society, and which ensure a continuous and high rate of expansion of our national economy.



So, in the first decades of Soviet Union, productions of means of production or investing was what was given priority. This didn't mean workers' lives weren't improving. In fact, it was the constant and rapid expansion of the soviet economy that allowed the gains in standard of living, that are demonstrated primarily with the improvements in life expectancy, litteracy etc.
The sheer size of the economy would result in an abundance of products to satisfy consumers while a continued high investment rate would mean this could go on endlessly.


However, there was a policy shift in the latter years. Under reforms initiated by Khruschev -which were never reversed but only deepened- the focus of the economy was to change.

Here's what Encyclopaedia Brittanice mentions of Kosygin, a leading politician of this era


In 1965 Kosygin introduced comprehensive reforms that were designed to modernize the Soviet economy. He sought to improve the planning process, to encourage greater initiative on the part of plant managers, and to rely more on profit as a means of improving economic efficiency. When he announced in 1966 the new economic five-year plan to govern the Soviet Union from 1966 to 1970, Kosygin adhered to Khrushchev’s policy of placing relatively heavy emphasis on the production of consumer goods (http://www.britannica.com/EBchecked/topic/134546/consumer-good), and he altered Khrushchev’s objectives only by setting more realistic target dates for various economic projects.


At that point, the soviet economy takes the wrong turn. It isn't planned with the benefit of the working class in mind; instead the economic decisions are left more and more in the hands of individual managers. Constant growth with the economy shifting away from producing capital is unattainable and stagnation and shortages followed.

[ComradeOm]

So, in the first decades of Soviet Union, productions of means of production or investing was what was given priority. This didn't mean workers' lives weren't improving. In fact, it was the constant and rapid expansion of the soviet economy that allowed the gains in standard of living, that are demonstrated primarily with the improvements in life expectancy, litteracy etcWhich is only true for a very selective reading of the facts. The reality is that the real wages and living standards of the Soviets workers were deliberately suppressed during the Stalin era as such a curtailment of consumption was considered necessary for rapid industrialisation. Soviet living standards plunged from the late twenties onwards (rationing was a fact of life in the cities until at least 1935) during the most intense period of industrialisation and continued to be of a very poor standard (the housing crisis being the most obvious sign) until the 1950s. So to simply state that living standards follow on automatically from industrialisation is simply false

In fact it was not until the Khrushchev years, with the abandonment of the Stalnist coercive economy, that the Soviet workers saw a real and sustained increase in living standards. Philip Hanson reckons that in the decade 1953 to 1964 Soviet per capita consumption increased by 44%. In contrast even the most optimistic estimates quoted for consumption growth during Stalin's reign are no more than 11% from 1928 to 1953

Very quick references:
Hanson (The rise and fall of the Soviet economy)
Davies (Soviet economic development from Lenin to Khrushchev)
Davies (The transformation of the Soviet economy)
Ellman (Socialist planning)
Kuromiya (Stalin's industrial revolution: politics and workers)

[Dejavu]

I have been reading about the history of the Soviet Union more intensely of late, and one thing I've never been able to entirely conceptualize is the stagnation that began in the mid-70s. Why did this happen? How could it have been prevented?

Thank you in advance, comrades.

Why did it happen? Planning.

How could it have been prevented? Not Planning.

[Jia]

Why did it happen? Planning.

How could it have been prevented? Not Planning.

What is this? A unhelpful brief post.

How could have it been prevented? By not posting

[Dejavu]

^ Love the sense of humor :D

[FSL]

Which is only true for a very selective reading of the facts. The reality is that the real wages and living standards of the Soviets workers were deliberately suppressed during the Stalin era as such a curtailment of consumption was considered necessary for rapid industrialisation. Soviet living standards plunged from the late twenties onwards (rationing was a fact of life in the cities until at least 1935) during the most intense period of industrialisation and continued to be of a very poor standard (the housing crisis being the most obvious sign) until the 1950s. So to simply state that living standards follow on automatically from industrialisation is simply false

In fact it was not until the Khrushchev years, with the abandonment of the Stalnist coercive economy, that the Soviet workers saw a real and sustained increase in living standards. Philip Hanson reckons that in the decade 1953 to 1964 Soviet per capita consumption increased by 44%. In contrast even the most optimistic estimates quoted for consumption growth during Stalin's reign are no more than 11% from 1928 to 1953

Very quick references:
Hanson (The rise and fall of the Soviet economy)
Davies (Soviet economic development from Lenin to Khrushchev)
Davies (The transformation of the Soviet economy)
Ellman (Socialist planning)
Kuromiya (Stalin's industrial revolution: politics and workers)



Other books of them seem more interesting like "The Voices of the Dead: Stalin's Great Terror in the 1930s" or "The years of hunger". The titles are pretty colorful, I admit.


Living standars rise "automatically" as the economy produces more -and assuming it's not capitalists reaping the profit. They will stagnate or worsen when the economy plunges. The comment on sustained increase in consumption where sustained is freely used to describe a period of 10 years did make me smile.
Of course, these statistics are a result of the previously mentioned men of science. Neither their methods, not their integrity is to be questioned.

[ComradeOm]

Living standars rise "automatically" as the economy produces more -and assuming it's not capitalists reaping the profit
One might assume that this would be the case in a socialist economy. But then that opens the very nature of the Soviet Union to question

The reality is that living standards simply did not rise during the 1930s. Anyone who believes that this was the case has either been reading nothing but the likes of The Results of the First Five-Year Plan (http://www.marxists.org/reference/archive/stalin/works/1933/01/07.htm) or is otherwise completely ignorant as to the early economic and social history of the USSR. Theory can only be shaped by historical fact

In addition to the above references, I'd also note that Fitzpatrick's Everyday Socialism is an excellent sketch of Soviet society during the 1930s

[FSL]

The reality is that living standards simply did not rise during the 1930s. Anyone who believes that this was the case has either been reading nothing but the likes of The Results of the First Five-Year Plan (http://www.marxists.org/reference/archive/stalin/works/1933/01/07.htm) or is otherwise completely ignorant as to the early economic and social history of the USSR. Theory can only be shaped by historical fact



MPC+MPS=1

Increased MPS will mean the K/L ratio also increases in the short-term causing a jumpstart in the economy. Continuous investments in technology will mean a steady rate of growth in production per capita equal to t.

Decreased MPC amounts to a real increase in consumption as Y is increasing. The faster its pace is, the bigger the gains.

Starting at 1956 and with Y being a given, inceasing MPC will bring a jumpstart in consumption. It isn't a feat as it simply amounts to moving people from, say, steel industry to car industry or resourses from R&D to making perfume. Long term effects of said policy is t decreasing and productivity dropping as even in the car factory antiquated machinery starts falling apart. Products are faulty and lack of investments leads to a staggering decrease in productivity and of course consumption.


Despite these, to claim that workers during the years of the great advances (and that's what they were, never before seen, rapid, constant growth undisrupted by capitalist cycles/crises) were living in a deliberately caused tragic situation amounts to not much more than western propaganda. Any problems were less the results of industrialization or collectivization and more the result of kulak resistance or nazi aggression. Workers were living in homes with electricity, had medical coverage, a fixed amount of work and a fixed amount of free time. Kids had access to education, books, could attend ballet dance classes, youth centers, sports facilities. The western model of private consumption wasn't pursued back then (not even in the West at the time).
In any case, the best answer is probably given by those that experience Soviet Union first hand. And they hardly seem to have fond memories of the reformists, do they.

[Psy]

The problem was the U.S.S.R economy was geared towards exports, as the global economy stagnated so did the U.S.S.R's exports on the global market. Basically the U.S.S.R was more followers of Frederick List (a German national industrialist that stated the state had to back massive industrialization to combat inequalities in the free-market) then Karl Marx. Once the U.S.S.R industrialized and became a major supplier on the market it found itself trapped by the market, as the world market contracted in the 1970's so did the U.S.S.R's economy.

The solution would have been to delink the U.S.S.R from the world market so as demands for exports fell the U.S.S.R simply consumed more internally.

[Klaatu]

"Whether the economy grows depends on mainly 3 things: Level of technology, amount of labor, amount of capital."

You forgot something: need.

When there is a need for something, someone will work to provide for (and profit from) the sale of the fulfillment of said need.
In a free market, it is the capitalist which will provide for that need. In a socialist market, it is the state which will do so. Granted, the "free market" will provide for that need more efficiently and with lower cost, than the "social market" can. But as we have seen time and again, this comes with hidden costs: nearly-slave labor, environmental pollution, and potentially hazardous parameters (or even known dangerous ones) absent from the "price" of said product. For example: lead paint in children's toys, carcinogenic benzene in gasoline, etc. Not to mention the obscene profit rate and "executive bonus" compensation of the typical parsimonious capitalist.

Personally, I believe in the public ownership of the means of production (socialism) as a form of safeguard against the wanton "anything goes" attitude of the capitalistic provider of need.

Here is a great 20-minute documentary
The Story of Stuff
http://www.storyofstuff.com/

[ComradeOm]

MPC+MPS=1

Increased MPS will mean the K/L ratio also increases in the short-term causing a jumpstart in the economy. Continuous investments in technology will mean a steady rate of growth in production per capita equal to t.

Decreased MPC amounts to a real increase in consumption as Y is increasing. The faster its pace is, the bigger the gainsTheory that does not match with reality is either a flawed theory or a flawed comparison. The reality, and I repeat this, is that this formula does not hold true for the USSR during the Stalin years. This is fact. You have presented absolutely no figures to challenge this and are extremely unlikely to find these outside of Stalin's own works or those of similar whitewashing apologists. Any half-way decent study of Soviet society during the 1930s can only conclude that for the vast majority of workers life had not become either better or more cheerful. Rather, as I've pointed out above, living standards plunged during the industrialisation years and did not significantly increase before 1953

Of course it almost goes without saying that the idea that the housing crisis, for example, - which was severe, widespread, and persisted until the 1950s - was caused by "kulak resistance or nazi aggression" is absolutely ludicrous

To reiterate: This is not theory and I have absolutely no interest in whatever formulae you happen to have memorised


In any case, the best answer is probably given by those that experience Soviet Union first hand. And they hardly seem to have fond memories of the reformists, do they.You mean they miss the capitalist state restored by Khrushchev? Or are you referring to possible survivors of the Stalin era?


The problem was the U.S.S.R economy was geared towards exportsThat is questionable and certainly not true of the Stalin years

[FSL]

Theory that does not match with reality is either a flawed theory or a flawed comparison. The reality, and I repeat this, is that this formula does not hold true for the USSR during the Stalin years. This is fact. You have presented absolutely no figures to challenge this and are extremely unlikely to find these outside of Stalin's own works or those of similar whitewashing apologists. Any half-way decent study of Soviet society during the 1930s can only conclude that for the vast majority of workers life had not become either better or more cheerful. Rather, as I've pointed out above, living standards plunged during the industrialisation years and did not significantly increase before 1953

Of course it almost goes without saying that the idea that the housing crisis, for example, - which was severe, widespread, and persisted until the 1950s - was caused by "kulak resistance or nazi aggression" is absolutely ludicrous

To reiterate: This is not theory and I have absolutely no interest in whatever formulae you happen to have memorised

Since it's a fact I can only admit I was wrong.

[ComradeOm]

Since it's a fact I can only admit I was wrong.Disappointing, I was hoping that you'd bring different sources to the table or actually engaging with the points I raised above (such as the collapse in real wages, housing standards, diets, etc). But then maybe you're not being sarcastic and really did learn something here

[FSL]

Disappointing, I was hoping that you'd bring different sources to the table or actually engaging with the points I raised above (such as the collapse in real wages, housing standards, diets, etc). But then maybe you're not being sarcastic and really did learn something here


No, I didn't. *sadface*

But then again you have many times dismissed any claims of USSR not being a hellhole at that time as "whitewashing apologists", so not much point in trying I guess?

And I found the idea that we should change basic economic theory to fit your view of Soviet Union's financial policy quite a bit amusing and sarcasm-worthy.

[ComradeOm]

But then again you have many times dismissed any claims of USSR not being a hellhole at that time as "whitewashing apologists", so not much point in trying I guess?You have yet to present a single figure to back up your case and have repeatedly fled to the safer fields of abstract theory. If you have a source that claims that living standards did not plunge during the 1930s, or can otherwise contradict my assertions above, then produce it. But then given the overwhelming evidence that suggests that there was a sharp fall in real wages, living conditions, etc, during the 1930s I imagine that it would be difficult to find a half-way serious study that contends otherwise

And no, I do not consider Stalin to be an authoritative source


And I found the idea that we should change basic economic theory to fit your view of Soviet Union's financial policy quite a bit amusing and sarcasm-worthy.Whereas I find the idea that you ignore all historical reality in order to shoehorn the USSR into your theoritical model to be more depressing than amusing. The Soviet Union does not fit the behaviour predicted by your formula. So either prove otherwise or accept that your application of the theory (not necessarily the theory itself) is badly flawed

[Psy]

That is questionable and certainly not true of the Stalin years
The U.S.S.R was geared to exports this is why when the Western European car sales dropped it effected the U.S.S.R as Eastern Europe (including the U.S.S.R) exported car parts and raw materials to western Europe, the fact that the soviet block (exuding the U.S.S.R) borrowed money on the world market compounded the problem.