Planning In The Soviet Economy: Successes And Failures

It is with much anticipation that one of the major world highlights of transitional economies be examined in detail – that of the Soviet Economy.

Throughout this research the evaluation of the Soviet Economy before and after the implementation of the New Economic Policy is the major focus. This entails the transition of the Soviet economy from a capitalist to more centralized socialist structured system. The Soviet Union being a centralized economic system recorded high growth rates in the initial stages but the sudden demise of this recognized economy remains somewhat a mystery.

The Soviet Economy also referred to the Union of Soviet Socialist Republics (U.S.S.R), was formed in late 1922 after the 1917 Russian Revolution which was led by an inexperienced leadership team since this was the first successful socialist revolution in history (Ward, 1979, p. 67).

The revolution was led by then Soviet leader Vladimir Lenin, whose leadership was succeeded by Joseph Stalin. In the 1920’s Lenin was able to successfully make what seemed to be worthwhile decisions regarding the Soviet Economy: that of transforming the economy into a centrally planned system and the collectivization of agriculture (Gregory & Stuart, 1999, p. 194).

After the revolution the economy was not at a good performance level. This led to the introduction of the NEP in 1921 through 1928 by Lenin. The NEP, the pre and post eras which are the major focus in this research, tolerated some amount of private ownership, a minimum level of market-based system and a taxation system on agriculture to stabilize the economy after these were to an extent eliminated in the preceding War communist years.

This research provides a wide range of substantial information regarding detailed historical facts of the Soviet Union and also statistical analytical data and information that attempts to carefully outline the prevailing economic situations during the pre and post era of the Soviet Union.

During the Soviet years much emphasis was paid to the period 1928 – 1991 which were the years that Joseph Stalin implemented the Five-Year plans. These planning years involved different sectorial aims and objectives all of which had a common long term goal – economic growth. Some primary sectors were that of Soviet agriculture and industrial sectors.

Initial growth of the Soviet socialist society can be attributed to the focus which was made on the areas of the economy which had the highest potential of bringing “instant” growth. However, since other minors sectors were of less concern to the authorities, these sectors suffered great declines and were lagging far behind.

The failure by the authorities at that time to implement recovering economic policies led to a slow decline of the Soviet economy hence its demise in late 1991.

AIMS AND OBJECTIVES

With regards to the Soviet Economy the aims of this research seeks to thoroughly examine the following:

The creation of the Soviet Union.

The factors that led to the implementation of the NEP.

The impacts of the NEP on the economy – whether good or bad.

Contribution factors that led to the creation of the five year plans.

The performance of the Economy in different sectors.

To provide a detailed overall performance of the economy so as to allow for meaningful economic decisions in the future.

The goals of this research will be achieved by the following criterion;

Gathering sufficient data regarding the creation of the Soviet Economy after which a detailed analysis will be done to determine the causes and impacts of the NEP on the economy.

Evaluation of statistical data to determine the effects of the Five year plans in different phases of the economy.

Assessing data to determine the performance of the economy in different sectors.

JUSTIFICATION OF THE RESEARCH

The Soviet Economy though viewed as successful, was one that implemented varying opportunity costs to achieve economic growth and development.

This research seeks to provide the reader with substantial knowledge of the Soviet Economy through the thorough analysis of the economy from different perspectives. Insights on the following will be of key importance;

The origin of the Soviet Union.

Assessing the Soviet Economy’s performance before the implementation of the five year plans (the years of the NEP).

Determining principal decisions that led to the implementation of the Five-year plans.

Analyzing the impacts of the Five-year plans on the economy.

Understanding the strategies that the different Five-year plans implemented.

Assessing the contributing factors that led to the breakdown of the economy.

BACKGROUND

The Soviet Economy during the time of its existence was a major highlight of economic development. The Soviet Economy also referred to as the Union of Soviet Socialist Republics (U.S.S.R) consisted of Russia and fourteen Republics namely Armenia, Azerbaijan, Belarus, Estonia, Georgia, Kazakhstan, Kyrgyzstan, Latvia, Lithuania, Moldova, Tajikistan, Turkmenistan, Ukraine and Uzbekistan; Russia being the largest. The geographical scope of the Soviet Economy occupied 8.6 million square miles with vast ethnic, cultural and historical diversity (Gregory & Stuart, 1999, pg.195). The main economic activities of members of the Soviet Union were inclusive of the industrial and agricultural sectors, the production of steel, coal, military necessities and also the provision of services among many others of which 80 to 90 percent of industries were nationalized and funded by the state finances.

The U.S.S.R was formed in late 1922 under the leadership of Vladimir Lenin and the Communist Party five years after the 1917 destructive revolution and civil war. The revolution however saw the Bolsheviks rise to power destroying the imperial government as they sought to build a strong socialist society through the formation of the Soviet Union. The then struggling economy was introduced to two economic “experiments” (Gregory & Stuart, 1999, pg. 195), War Communism (1917-1920) and the New Economic Policy (1921-1929). These policies aimed to control the economy which was enduring low output levels, decreased industrial output among other sectors with declining growth. The policies of War Communism and the New Economic Policy (NEP) which were implemented by Lenin sought to remove all forms of capitalism such as that of private farmlands, factories, mills and banks and to create a partnership between weak Bolshevik Government and peasantry where the peasants were a major part of the population. War communism aimed to overcome leadership by the Whites and shortages such as food. The NEP was a formal form of some level of private ownership, taxation and a minimum level of a market based system in that peasants were able to dispose of their extra food on the open market. This step led towards the establishment of better market interactions, financial concessions and new business opportunities as well as foreign investments.

The Bolsheviks called themselves the one-party rule of the communist beginning in March 1918 and was the only form of government in the Soviet Union. The Soviet government in the 1920s led the economy to impeccable changes through centralization and industrialization with some form of private enterprises and nationalized industry. In 1924, Lenin died and Joseph V. Stalin became the successor of his rivals and by the end of the 1920s, the leader of the Soviet Union.

The Soviet Economy recovered under the NEP and by 1926 – 1927, economic indicators were almost at pre-war-levels. However, this led to the re-emergence of the capitalist class becoming persistent in both the countryside and town area. Eventually by 1929, the NEP was abandoned due to the adoption of the first five-year plan. Stalin’s’ intentions for a socialist economy were through five year plans which aimed at industrialization of the economy and eliminating all capitalism. In doing so, the state then controlled the economy’s resources and allocated lands for farming to peasants notwithstanding the hardship that the peasants faced – starvation, deaths of many and forced collectivization by the government.

The first five year plan set the stage for heavy industry and was made out by the State Planning Commission (GOSPLAN). The plan also introduced agricultural production where the prosperous peasants called the Kulaks had to give their land over to the State for collective farming and were punished severely if they didn’t. The first five year plan endured the period 1928 – 32 and was deemed a great success in industrial and agricultural sectors of the economy. Immediately after, the second five year plan followed which was merely an extension of the first five year plan and was primarily focused on the agriculture which provided employment for about one third of the workers in the country. This plan lasted from 1933 – 37 and success continued where persons saw the end of bread as well as meat rationing in 1934. The third five year plan lasted for 3 ½ years and endured the period 1937 – 41 but came to a halt in 1941 with the interruption of the Second World War, followed by the fourth five year plan (1946 – 15). These plans were successful in the industrial area mainly because of the need for armaments but failed in the other sectors of the economy.

During the fifth five year plan Stalin died in the year 1953 but the plan was still carried out which aimed at the production of consumer and civilian machinery after the recovery of World War II. This plan lasted from 1951 – 55 and saw significant increases in overall output of the economy. However, the sixth five year plan which focused on the management of industry and construction was scheduled to run from 1956 – 60 but ended two years later in 1957 due to the inefficiency in the supply of raw materials, funds and fuels. With the death of Stalin, the State introduced Collective leadership and placed Nikita S. Khrushchev as their new leader who continued with the seventh five year plan but was not able to succeed in his efforts of increasing agricultural output and even though the plan lasted for the period 1959 – 65, he was dismissed by the State in 1964.

This change in leadership saw the era of again a new leader, Leonid I. Brezhnev whose primary aim in the eighth five year plan was to achieve agricultural and industrial development as well as the living standards of the citizens but even though production increased, the overall performance of the economy was poor. The plan still however endured the five year period of 1966 – 70. In 1971 – 75, the ninth five year plan came into being and portrayed significant growth in the economy; however this marked the end of overall growth and successes in the economy. The tenth and eleventh five year plans which lasted from 1976 – 80 and 1981 – 85 respectively were also aimed at the development of the different sectors in the economy but remained below target level and was unable to increase. This saw the end of the Brezhnev era in 1982 when he died and the plans were continued by the new leader Mikhail Gorbachev who was the last and final leader of the Soviet Union.

Gorbachev attained leadership in 1985 and continued with the twelfth five year plan lasting from 1986 – 90. His aim was to improve the speed and state of economic development thereby using innovative scientific and technical means to progress. But with the policies he implemented, workers found it difficult to comply and so he was unable to succeed and with the introduction of the thirteenth five year in 1991, the Soviet Union came to an abrupt end still unable to recover the economy from the unfortunate decline since the ninth five year plan.

1. LITERATURE REVIEW

1.1 The creation of the Soviet Union

The purpose behind the formation of the Soviet Union in 1922 was to bring a recovery to the small hopeless economies from economic ills, and to build relations to promote economic growth by utilizing different methods such as trade and other forms of economic integration. But what was it that really led to this creation of the Soviet Union? The creation of the Soviet Union was a step taken after the 1917 Revolution to eliminate private ownership of lands and class struggles – the class struggle cannot, of course, be set aside for any length of time, so long as class rule exists. The greater the demands of the working classes become, the sharper will grow the resistance of their exploiters (Karl Kautsky). The formation of the Union of Soviet Socialist Republics meant the consolidation of the Soviet power and a great victory for the Leninist-Stalinist policy of the Bolshevik Party on the national question. [1] . According to Lewis Siegelbaum, within the Declaration of Union particular attention should be paid to its justification, namely the inadequacy of the “isolated efforts of the separate Republics towards economic reconstruction” and the common struggle against “capitalist encirclement,” and to the use of familial metaphors to characterize relations among the Soviet peoples.

1.2 The factors that led to the implementation of the NEP

The New Economic Policy commonly known as the NEP was a form of stabilization of the economy from its economic downfall. Two economic “experiments” were conducted in the decade following the revolution of 1917; War Communism (1917-1920) and the New Economic Policy (1921-1928). Both responded to the needs of the consolidate power and marshal economic resources. [2] Despite their victories on the military fronts, the Communists found themselves in a very difficult position in the winter of 1920-1921.In his article Soviet Russia: A Living Record and a History, William Henry Chamberlin stated that, “the World War had placed a severe strain upon industry and transport, and the disastrous consequences of the civil war, with its accompaniment of blockade, flight and sabotage of many members of the administrative and technical personnel of the factories, physical destruction as a result of military operations, and severance of the industrial centres of northern and central Russia from the sources of food and raw material in the south and east, can scarcely be overstated. Industrial production had sunk to 15 or 20 per cent of the pre-war level; large numbers of workers had fled from the cities to the country as a result of the lack of food; the productivity of agriculture had fallen catastrophically, and in more than one province the peasants were in armed revolt against the requisitions, which still did not yield enough to feed the hungry cities. It was against this background of economic collapse that Lenin formulated the emergency programme that acquired the name of New Economic Policy.” [3] 

After the failure of war communism, Lenin then implemented the NEP to recover the economy. The NEP signaled a partial return to private ownership, reintroduction of the market as a primary mechanism for resource allocation and the reimplementation of a more viable tax system on agriculture. [4] Secondly, during War Communism Lenin nationalized industries and eliminated the market but did not replace the market with a plan or some other substitute mechanism. [5] 

1.3 The impacts of the NEP on the economy – whether good or bad

Under NEP, market forces and the monetary system regained their importance. The state scrapped its policy of grain requisitioning in favor of taxation, permitting peasants to dispose of their produce as they pleased. NEP also denationalized service enterprises and much small-scale industry, leaving the “commanding heights” of the economy – large-scale industry, transportation, and foreign trade- under state control. Under the mixed economy of the NEP, agriculture and industry staged recoveries, with most branches of the economy attaining prewar levels of production by the late 1920s. In general, standards of living improved during this time, and the “NEP man,” the independent private trader-became a symbol of the era. [6] The basic feature of the NEP, which was promulgated at the Tenth Communist Party Congress in March 1921, and gradually went into effect during succeeding months, was the substitution of taxation for the former system of requisitioning all the peasant’s surplus grain. Permission to sell his surplus in the market revived the peasant’s interest in sowing and harvesting larger crops; and the rise of agriculture in turn constituted the necessary prerequisite for the revival of the depopulated cities and the stagnant industries. Under the New Economic Policy the state management and operation of the country’s industries and transport remained; but the previous system, under which the industries turned over their products to the state and received, or were supposed to receive, their supplies of food for the workers and raw materials for the plants through a highly bureaucratized and inefficient distributive apparatus, was reorganized in a manner calculated to give the individual industrial units more initiative and more responsibility. Money and banking and other elements of capitalist technique, which had been discarded or had largely lost significance during the so-called War Communism of the preceding period, again found a place under the NEP. [7] 

1.4 The decline of the Agricultural Sector

After the implementation of the Five-year plans, two types agriculture existed in the Soviet economy: the collective farms (kolkhozy) which involved the peasants and the state farms (sovkhozy), (Gregory & Stuart, 1999, p. 211). In these types of farming, workers were sort of exploited in that they received different payments for their produce. Here possible reasons for its decline are examined.

In their book, Comparative Economic Systems, Paul R. Gregory and Robert C. Stuart stated that, “Soviet agriculture has been of more than passing interest to Western observers. Catastrophic failures, minimal supplies of meat, and the virtual absence of produce in Soviet cities in winter were puzzling in a heavily industrialized nation. Many observers laid the blame for uneven Soviet agricultural performance on unique Soviet organizational arrangements or on limited investment in agriculture.”

Giving similar views was David A. Dyker in his book Restructuring the Soviet Economy. He stated that “There cannot be the slightest doubt that bad luck with the weather has had something to do with the crisis situation. It is, furthermore, quite clear that in Soviet natural conditions North American yields are simply unattainable. But the extent of the failure in the agricultural policies of the Brezhnev government must incline us to support that organizational problems have been at least as important as acts of God in inducing the generally dismal production and productivity record.”

1.5 Reasons for the implementation of the Five-year plans

The Five-year plans were the main criterion towards the economic growth experienced during the period 1928-1991 of the Soviet planning years.

Arguments presented in the book, History of the Communist Party of the Soviet Union (Bolsheviks) written by The Commission of the Central Committee of the C. P. S. U, stated that “In April 1929, the Party held its Sixteenth Conference, with the First Five-Year Plan as the main item on the agenda. The conference rejected the “minimal” variant of the Five-Year Plan advocated by the Right capitulators and adopted the “optimal” variant as binding under all circumstances. Thus, the Party adopted the celebrated First Five-Year Plan for the construction of Socialism.”

This book also gave reference to the views presented by Joseph Stalin, the Soviet leader at that time:

“The fundamental task of the Five-Year Plan,” said Comrade Stalin, “was to create such an industry in our country as would be able to re-equip and reorganize, not only the whole of industry, but also transport and agriculture-on the basis of Socialism.”

1.6 Soviet Failures

Much debate has been presented to find the real reason behind the downfall and eventual abrupt end to the Soviet economy. Giving his views was Benjamin Ward in his book, The Radical Economic World View. He stated that, “Collectivization was one of the most serious as well as one of the most misunderstood of Soviet failures. That it was a failure can hardly be doubted.” He also condemned the strategies that Stalin implemented. “A second basic failure,” he stated, “is represented by Stalinism. As a consequence of the brutality of Stalin’s rule, from collectivization in the late twenties to the “doctor’s plot” on the eve of his death, the Soviet regime was marked by an extreme of political centralization and terrorism that is one of history’s darkest pages.”

METHODOLOGY

This research was successfully completed by gathering information from the following sources:

The University of Guyana Library

Recommended journals from the lecturer

Online published journals and articles from authentic websites.

2. ANALYSIS

2.1 ECONOMIC INDICATORS

2.1.1 General Evaluation of Five-Year Plans

After the end of the period of the New Economic Policy in 1928, after many drafts and redrafts, the First Five-year plan was formulated. Preparation and coordination of these plans were controlled by the State Economic Planning Commission (GOSPLAN). This marked the beginning of the thirteen Five-year plans which were implemented through 1928 to 1991 after which Soviet Economy met its demise. Table 1 as follows gives a summary of the aims and objectives that these thirteen plans implemented. The first eight Five-year plans were regarded as successful in the Soviet Union. From the Ninth Plan onwards the economy began to experience declining growth rates due to major productivity problems, serious information and incentive deficits (Gregory & Stuart, 1999, p. 434).

2.1.3 Soviet Industrial Production

The Soviet Union was one that experienced fluctuating growth rates in the industrial sectors in both the Pre-Plan and Plan years (the Pre-Plan years being before 1928). During the Pre- Plan era, which was more of a centralized government system, the Soviet economy experienced extremely low growth rates in almost all industrial sectors compared to that of 1928 onwards. This is represented in Table 2 below. These low rates were due to a previous war along with the Bolshevik Revolution. However, in the Plan years the growth rate increased significantly to 7.6% compared to 0.7% in the Pre-Plan years.

2.1.4 Soviet Industrial Production (cont’d)

As represented in Table 3 of below, during the years preceding the Five-year plans, that is, the NEP years, the Soviet Economy experienced an ever flourishing industrial sector with climbing growth rates in the production of roubles. This trend of growth is clearly represented in Graph 1 of the Appendix.

TABLE 3

Industrial Gross Production (in million prewar roubles)

Factory industry Whole industry In per cent of 1913

1923-24 2590 4050 48.0

1924-25 3960 5650 67.0

1925-26 5720 7580 89.9

1926-27 6720 8760 103.0

1927-28 8140 10 080 119.6

Source: Soviet Russia: Anatomy of a Social History; Part IV: Perfection and Self-Destruction of the New Economic Policy; http://www.marxists.org/archive/strauss/part4.htm#f1

The table shows performance of the Industrial sector during the period of the NEP.

2.1.5 Soviet agriculture (Grain Production)

Agriculture was one of the major economic activities in which the Soviet people were involved. It is to this effect that all was done to ensure that the agricultural sector remained one of the top priorities. Though the Soviet Economy, most importantly Russia, was seen as the breadbasket of Europe (Goldman, 1983, p. 63), they were unable to meet production requirements in supplying the grain market and worst of all in satisfying the needs of their own Soviet people.

Russia was the largest grain exporter during the pre-revolution era. They exported in excess of 11 million metric tons of grain a year (Goldman, 1983, p.63). This was probably the hopes of what Soviet leaders expected to prevail throughout the post revolutionary period. However, the worst was yet to come. In 1962 of the planning years, grain exports were at its highest, but approaching the 1970s their exports began declining. Instead as if reflecting the bad side of communism, they became the one of the largest grain importer during that time of approximately 35 to 45 million tons per year (Goldman, 1983, p. 63-64). The following Table 4 represents this data.

1 U. S. Department of Agriculture estimates

2 Author’s estimates

Source: Goldman, M. I., USSR IN CRISIS, The Failure of an Economic System. W. W. Norton & Company, New York & London, 1983.

2.1.5 Soviet Agriculture (cont’d)

During the years of the NEP, when compared with the industrial sector, the agricultural sector was also at a good performance level. Table 5 which is reflected in Graph 2 in the Appendix shows climbing growth rates in gold roubles production in progressing years leading up to the Five-year plans.

TABLE 5

AGRICULTURAL GROSS PRODUCTION (IN MILLION GOLD ROUBLES)

1923-24 9280 79.9 per cent of 1913

1925-26 11 760 101.3 per cent of 1913

1927-28 12 260 105.6 per cent of 1913

Source: Soviet Russia: Anatomy of a Social History; Part IV: Perfection and Self-Destruction of the New Economic Policy; http://www.marxists.org/archive/strauss/part4.htm#f1

Employment levels in the Soviet Economy

Table 6 shows the variation of the employment rate after the NEP.

2.1.7 Economic Growth

The Soviet Union is known to be one of the most prosperous unions during the early 1930s. These rates accomplished during these years were attributed to the heavy emphasis that was placed mostly on the industrial and agricultural sectors. It was during the early First Five-year plan that Stalin collectivized agriculture putting an end to private ownership of lands. Also attributing to the good years of economic growth was massive production in military output during the Third Five-year plan. Paul Samuelson stated that, “GNP in the Soviet Union was about half that in the United States but the Soviet Union was growing faster. As a result, one could comfortably forecast that Soviet GNP would exceed that of the United States by as early as 1984 or perhaps by as late as 1997 and in any event Soviet GNP would greatly catch-up to U.S. GNP.” [8] 

FINDINGS

From the data gathered, it is of clear incidence that the Soviet Economy was one that had rapid economic growth immediately following the 1917 revolution and during the initial stages after the implementation of the Five-year plans.

The industrial sector grew almost twice as the 1927 output with the introduction of the first five year plan. See appendix, Table 1. The table shows progress that was made in ‘ heavy industry’ from the base line figure in 1927 before the five year plans were implemented and the target for the first five year plan in brackets against what was actually achieved. [9] After the NEP industrial gross production began to increase at a steady pace. See appendix, Figure 1.

Increase in the agricultural sector was not at a steady but there were increases in agriculture. See appendix, Figure 2.

See appendix, Figure 3. The chart shows the amount of schools built during the NEP era however, during this period construction declined severely. The graph shows the negative impact of the NEP due to the mismanagement of the economy’s resources.

LIMITATIONS

This research though successfully completed, was one of much challenge due to some unforeseen circumstances. If not for the following difficulties this project would have been completed more effectively and at an earlier date.

Lack of updated information from most of the books used throughout the research.

Insufficient statistical data with regards to all perspectives of the economy that was researched.

Lack of easy access to the use of the computer by all group members.

RECOMMENDATIONS/CONCLUSIONS

The Soviet Union as a nation did achieve soon level of success and may have had the potential to be a great nation but they lacked a proper team of leaders to move the nation forward, a leader with great vision for the nation and plan for the future and not only planned for the present. Experience was critical in order for the nation to have been successful. The leaders focused too much of their resources on producing iron and other material use for war they did not take care of the people of the Soviet Union, Vladimir Lenin tried to fix this with his New Economic Policy but he failed miserably and was unable to really move the nation to a place that they could prosper. His successor Joseph Stalin who was a cruel deactivator only made lives in Russia even harder for the average soviet. He replaced the NEP with a highly centralized command economy and he introduced a series of five year plan which were aimed at industrialization. In an attempt to increase growth in the economy’s different sectors, the leaders did know care what conditions the people of the union faced. Stalin’s leadership allowed for the living standards of the citizens to be degraded, there were no proper facilities like schools, healthcare or drainage for persons. Due to the lack of employment in the country areas as well as facilities, persons from the country side moved to the town areas causing an influx in one place. There were even deaths of many due to starvation and the difficulty in having access to better healthcare. People’s homes lack water and proper drainage and toilet accesses. Stalin’s policies did achieve economic growth and overall output but the social outcomes were failures to the economy.

The leaders of the NEP should have focused more on the well being of the citizens of the Union instead of trying to enforce polices that only aimed at the growth of the economy. Where health benefits were concerned, persons were treated poorly leading to the deaths of many. The aim basically for the leaders of the Soviet Union was to achieve historical fame and political authority or rights. In doing they were selfish and as a consequence, this led to a gradual destruction and eventually the end of the Soviet Union in 1991.

REFERENCES

Goldman, M.