Economy of the Soviet Union

• 1. Introduction

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  The Economy of the Soviet Union was the second largest in the world for decades, rivaled only by the United States. Yet behind that headline figure lay a system that routinely ran short of basic goods, filled warehouses with products nobody wanted, and required citizens to build informal "networks of favors" just to obtain everyday items. A 1986 study published in the American Journal of Public Health, citing World Bank data, claimed the Soviet model provided a better quality of life and human development than most market economies at comparable stages of development. That finding sits uneasily alongside images of long queues outside Soviet shops and a parallel black market that flourished precisely because official production kept missing what people actually needed. How did a country that outpaced nearly every other economy in per capita growth during the twentieth century end up bequeathing its successor, the Russian Federation, sixty-six billion dollars in external debt and barely a few billion dollars in net gold and foreign exchange reserves? That is the question this documentary sets out to answer.

• 2. Planning by Command

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  Gosplan, the State Planning Commission, sat at the center of an enormous bureaucratic apparatus that also included Gosbank and Gossnab. Beginning in 1928, this apparatus directed the economy through a series of five-year plans, with one brief experiment in seven-year planning. The Politburo set broad control figures, which passed down through the Council of Ministers to Gosplan, then through economic ministries to individual enterprises. By the time targets reached factory managers, they had been subdivided and subdivided again until each enterprise had its own production quota. That same hierarchy funneled information upward, but with a critical flaw: few managers ever reported shortfalls or failures, for fear of political consequences. The result was what economist Naum Jasny captured in 1959 when he wrote that the most important official indices of national income, industrial output, and labour productivity had, over long periods, "nothing in common with reality." Between 1975 and 1985, data fiddling became common practice, with bureaucrats routinely reporting satisfied targets to protect themselves. Factories sometimes resolved shortages informally, exchanging raw materials and parts outside the plan entirely, in a shadow system the authorities knew little about.

• 3. Industrial Surge and Human Cost

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  Stalin's first Five Year Plan, running from 1929 to 1933, was by the source's own account a colossal failure, yet the broader Stalinist push industrialized the country at a pace that surpassed Germany in the nineteenth century and Japan earlier in the twentieth. Starting in 1928, heavy investment went directly into metallurgy, machine manufacture, and chemical production, skipping the slower accumulation of capital through light industry. The creation of NAMI and the GAZ copy of the Ford Model A in 1929 marked industrialization's first visible landmarks; alongside the factories came an extension of medical services that improved labour productivity, with campaigns against typhus, cholera, and malaria. The human ledger was grim. The Soviet famine of 1930-1933 killed between 5.7 and 8.7 million people. During the Holodomor in Soviet Ukraine from 1932 to 1933, millions of Ukrainians starved. The figures suggest a gap of roughly fifteen million people between anticipated population and those who survived the first five-year plan. In 1933, workers' real earnings sank more than 11.4 percent from their 1926 level. Soviet GDP fell 34 percent between 1940 and 1942 following the German invasion, and industrial output did not recover to its 1940 level for almost a decade.

• 4. The Oil Lifeline

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  World oil prices quadrupled in the period 1973-1974 and rose again in 1979-1981, and for the Soviet Union, that windfall became a substitute for reform. Soviet Premier Alexei Kosygin told the head of oil and gas production: "Things are bad with bread. Give me 3 million tons of oil over the plan." In 2007, economist and former Prime Minister Yegor Gaidar described what that hard currency accomplished: it stopped the growing food supply crisis, financed imports of equipment and consumer goods, funded the arms race to nuclear parity with the United States, and underwrote foreign-policy ventures including the war in Afghanistan. As analyst Daniel Yergin noted, the Soviet economy in its final decades was "heavily dependent on vast natural resources - oil and gas in particular." The Reagan administration moved to exploit exactly that dependency. At the request of CIA Director Bill Casey, Saudi Arabia intentionally flooded the global oil market to crash prices and drain Soviet foreign currency reserves. When world oil prices collapsed in 1986, a former CIA chief of staff later described the result as "a body blow to the Soviets. It was the equivalent of stepping on their oxygen tube." In that same year, the Chernobyl disaster, beginning on the 26th of April 1986 and described in the source as the costliest disaster in human history, added another severe strain on an economy already bleeding reserves.

• 5. Agriculture's Persistent Failure

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  Between 1961 and 1985, the Soviet Union spent a total of nearly 152 billion dollars on food imports from foreign producers, an expense that traced directly back to the structural failure of Soviet agriculture. Collectivization under Stalin replaced the mixed farming arrangements that Leon Trotsky and the Opposition had originally proposed on a voluntary basis with forced kolkhozes and sovkhozes, where annual production quotas were set by administrators rather than by the people who worked the land. Climate compounded the structural problems: many Soviet regions suffered little rainfall, short growing seasons, and low temperatures. When harvests fell short of quotas due to a sudden frost or drought, the system had no flexibility to compensate. Peasants who refused to work out of fear of starvation were forced off their land, which was then redistributed. After Stalin's death in 1953, Khrushchev looked to American agriculture as a model, noting its strength came from specialization and interdependence among farmers. He championed mechanized agriculture and even advocated particular crops like corn. By 1965, Soviet worker output was rising but still well below the average for a developed country, hampered by a scarcity of educated workers and poorly trained farm management. From 1972 to 1986, the Soviet Union failed to produce more wheat than the Western European average, locking it into the costly import dependency that persisted until the state's dissolution.

• 6. Growth That Did Not Reach Shoppers

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  During the era of publicly owned and planned production from 1928 to 1989, Soviet GDP per capita growth outpaced nearly all other world economies, trailing only Japan, South Korea, and Taiwan. Soviet per capita output expanded by a factor of 5.2, compared with 4.0 for Western Europe and 3.3 for the United States, Canada, Australia, and New Zealand combined. In nominal terms, the country's GDP crossed one trillion dollars in the 1970s and two trillion dollars in the 1980s. By 1970, the Soviet economy had reached an estimated 60 percent of United States size in key commodities such as steel and coal. None of that aggregate growth translated reliably into what people could buy. The consumer sector accounted for just 60 percent of GDP in 1990, while industry took 22 percent and agriculture 20 percent in 1991. Economic planners made little effort to determine what household consumers actually wanted, so whenever goods did reach shops, consumers routinely stood in long queues to obtain them. A black market grew up around chronically underproduced goods such as cigarettes. American journalist Scott Shane observed that the massive quantities of goods the Soviet system produced often failed to meet the needs or tastes of ordinary consumers. The Soviet ruble was non-convertible from 1932 until the late 1980s, meaning citizens and businesses alike could not freely buy or sell foreign currency; trading it on the black market was a serious crime. When free conversion was finally permitted, the exchange rate collapsed to roughly one-tenth of its official value.

• 7. Gorbachev and Dissolution

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  Awareness of the gathering economic crisis arose first inside the KGB, whose extensive network of informants gave it a clearer picture of conditions than the official statistics ever did. Yuri Andropov, director of the KGB, created a secret economic analysis department during the 1970s, and when he succeeded Brezhnev in 1982, he sounded the alarm to Soviet leadership. His remedy of increased discipline proved ineffective. When Mikhail Gorbachev became General Secretary of the Communist Party in March 1985, he began dismantling the command economy and moving toward a mixed economy modeled on Lenin's New Economic Policy. The reforms of perestroika were a determined but ultimately unsuccessful attempt to reverse decades of structural damage. At dissolution at the end of 1991, the Soviet state left the Russian Federation carrying a growing pile of 66 billion dollars in external debt and barely a few billion dollars in net gold and foreign exchange reserves. In 1989, official Soviet GDP stood at 2,500 billion dollars against United States GDP of 4,862 billion dollars, with Soviet per capita income at 8,700 dollars compared with 19,800 dollars for Americans. According to a number of scholars inside and outside the USSR, it was Soviet-type economic planning combined with political dogmatism that led to the gradual degradation of the economy and its final collapse.