USSR : economy

The Soviet founding fathers despised the capitalism that was taking shape in Russia, yet it took them a decade after 1917 to improvise a “socialist” economic model. During the three years of War Communism, which accompanied the Russian Civil War, they nationalized the banks, railroads, and big factories and outlawed most private commerce. To foster postwar recovery, Lenin in 1921 embraced a compromise, the New Economic Policy (NEP), which kept the “commanding heights” of the economy—finance, transportation, heavy industry, and foreign trade—in state hands but allowed individuals and private firms to carry out trade, small-scale manufacturing, and farming. Stalin and his allies jettisoned the NEP at the end of the 1920s, confiscating private property and launching the first Five-Year Plan. The planned economy was firmly in place by the mid-1930s. Periodic discussions of reform produced little concrete change, so it stayed intact until Gorbachev opened it up to searching criticism a half-century later.

Virtually all assets in the Soviet economy were owned by the state and controlled by its agents. The government agency Gosplan (Russian acronym for State Planning Committee) drafted the national plan.

It defined not only the country’s investment targets but also precise physical quotas for every enterprise’s output, the mix of economic inputs (such as raw materials and labor) it was to use, and a detailed schedule for completion. Another government committee fixed wholesale and almost all retail prices. As gauged by rates of growth, the planned economy performed reasonably well during the early and mid-1930s, during World War II mobilization, and for the 15 years after the war. Growth slackened after 1960, but some slowdown was to be predicted in any maturing economy. The prolonged decline of the 1970s and 1980s convinced many that the Soviet model was deeply flawed. The annual expansion rate of gross national product (GNP), which was 5.7 percent in the 1950s, slid to 5.2 percent in the 1960s, 3.7 percent in the first half of the 1970s, 2.6 percent in the second half of the decade, and 2 percent in the first half of the 1980s.

As growth faltered, shortages of food and other goods became more widespread.

The Soviet model apparently could not be adapted to the needs of the more complex economy it had helped bring about. Depletion of the country’s cheap natural resources demanded subtle incentives and more cost-sensitive methods, and modern technology necessitated freedom for managers to deal directly with suppliers and customers. With time, the planners in Moscow were overwhelmed by the decisions facing them. The cumbersome Soviet procedures did not enable the easy communication and flexible response that advanced production requires. Its problems aside, the Soviet Union’s economy was second in size only to that of the United States. One careful U.S. government study, basing its calculations on established Soviet

USSR economy. echinacities.com

prices, showed 46 percent of Soviet GNP in 1970 to have originated in industry, 21 percent in agriculture, 24 percent in services (including 8 percent in transportation and communications and 5 percent in trade), 7 percent in construction, and 2 percent in military-related service functions and other branches. Encarta