Soviet Communism: Economic Weaknesses


Figure 1.--Stalin's Five Year Plans focused on heavy industry and the military. Production of consumer goods was set far below actual demand. And although Soviet planners increased production of consumer goods after Stalin's death (1953), it never aprroached demand. Here Moscow shoppers eye high fashion in a department store. But more is involved here than just weather Soviets cuituzens were fashionably dressed or had all the consumer baubles they desired. Not understood by Soviet planners who believed that Communist economics was efficent, basing an economy on consummer demand was not only more just (rewarding workers for their labor) but was also more efficent. Without allowing consumer demand to play a major role in the ecomomy, the force of creative destruction never acted to eliminate wasteful and unproductive state enterprises. There are almost unbelieveable accouts of Soviet factory owners having a directive to make goods for which there was no demand. And not uncommonly the value of manufactured goods was less than the value of the raw materials used to make them.

Economically, the Soviet system simply did not generate sufficient wealth to sustain its political, social and economic ideals as well as provide the needs of its people. This is striking because the Soviet Union included some of the richest agricultural land in the world and a vast depository of natural resources and a well-educated population. Why with all those assetts was the Soviet Union economy so weak? There are a range of reasons. One factor is that the Soviet economy never recovered from the colectivization of agriculture. As a result, agriculture did not provide a surplus to help finance industrialization. Command economics is part of a reason. Trying to centrally manage the economy created many distortions as did the inefficent use of investment capital. The Soviet Union also stifled individual initiative which proved such a vital part of Western economies. Instead huge resources were devoted to an unproductive beaureacracy and equality unproductive military and security services. Without allowing consumer demand to play a role in the ecomomy, the force of creative destruction never acted to eliminate wasteful and unproductive state enterprises. There are almost unbelieveabke accouts about factory owners having a directive to make goods for which there was not demand. Once made and quota fullfilled they could not be sold so metal products might be melted down to make something which there was a market.

Basic Weakness

Economically, the Soviet system simply did not generate sufficient wealth to sustain its political, social and economic ideals as well as provide the needs of its people. This is striking because the Soviet Union included some of the richest agricultural land in the world and a vast depository of natural resources and a well-educated population.

Ideology

Communism was theoretically a superior, more effient economic system. Thus economic weakness in the Soviet Union proved to be a very difficult matter for Communist theocrats to explain.

Weaknesses

Why with all those assetts was the Soviet Union economy so weak? There are a range of reasons. Of course having a closed system, Soviet officials could keep details about the economic failures of the sydtem from the population. The basic theoretical excuse for successful Western economies was that the West was exploiting Third World countries. Of course unmentioned was the degree to which the Soviets were economically exploiting their Eastern European Empire.

Agriculture

One factor is that the Soviet economy never recovered from the colectivization of agriculture. As a result, agriculture did not provide a surplus to help finance industrialization. Stalin as p[art of his collectivization process, targeted the best farmers (the so-called kullacks) for death. The elimination of the country's best farmers and the imposition of the inefficent collective system was steps from which Soviet agriculture never recovered.

Central Planning and Command Economics

Command economics is part of a reason. Trying to centrally manage the economy created many distortions as did the inefficent use of investment capital. Soviet-styled socialism/ central has failed where ever tried and quite a long list of countries have trued it. Just look at Communist China -- an unenviable record of economic famine including the most deadly famine in world history. After the marker reforms and explosion of economic success and historic economic achievement. The historic record of failure in country after country is unassailable. Worth mentioning is why socialism fails. The basic answer is that unlike capitalism which creates wealth, socialism destroys wealth. One of the reasons for this is Soviet central planning has no price discovery mechanism which is at the heart of capitalism. When I was teaching school in South Carolina, the principal asked me to teach a course in Russian history. It was a rural school becoming a suburban school and there was a desire to expand the curriculum. Now I liked to mix things up in my classes with films and other presentations beyond just lecturing to them. The state audio visual office as you can imagine had no films on Russian history. So I hit on the bright idea of writing the Soviet Embassy in Washington. And sure enough they had quite a selection if films and more than happy to send along the ones I selected--free of charge. (This was in the days before CD and even VCRs.) The Soviet films were heavy on propaganda, but very interesting. And even the propaganda was useful because it led into discussions of not only the subject of the films, but what propaganda was and how it is used. I even used one of the films in my sociology classes where we were studying the Women's Movement. The ERA was he hot topic of the day. My boys claimed that there were things girls just could not do. Well the Soviets films showed hefty Russian ladies slinging around huge sacks of coal and grain. The boys were impressed and the girls for ever after wanted nothing to do with Communism Getting back to why socialism does not work. I noticed when I went to the office that the packages from the Embassy were unusually heavy. The reason for this I found was the film spools were constructed like a T-34 tank with heavy steel. Those of us old enough to remember , probably recall the films used in school. The film spools were made out of flimsy metal and the rims could be easily bent. Not so Soviet film spools. They used much more metal, but this provided no benefit. Heavy gauge metal was not needed. The reason the Soviets used so much metal is that there was no price discovery mechanism in the Soviet system The manager of the Soviet factory was not rewarded for reducing costs. He put in an order for the metal needed and it was delivered--no payment required. All that was important in the Soviet system was that his factory met its assigned quota. He was rewarded for exceeding the quota, but not for requesting less metal. So the result was that the inputs going into the factory were worth MORE than the finished film spools produced. By being worth more, I mean the iron, steel, and other metals could be exported for more money than the spools could be sold. What the Soviet factory had done was to destroy rather than create wealth. This is just one small example, but this was repeated all over the Soviet Union. And of course, with the fall of Communism, virtually all Soviet factories unless connected with the military quickly went broke because they were so inefficient. .

Technology

The Soviet Union built a massive military force. and they educated huge numbers of scientists and tchnicians--more than America. Financing this commiment placed a heavy burden on the economy. It wa larger than the burden America's ecomomy hd to deal with because the soviet economy was so much smaller than the American ecomnomy. And unlike the American economy, there was no ecinomic payoff. The tehnology developed for the american military gradually bled inyo the economy. In the soviet Union, technologocal advances were kept secret meaning there was no economic payoff to the work of Soviet reserchers. .

Individual Initiative

The Soviet Union also stifled individual initiative which proved such a vital part of Western economies. The Soviet Union had a competent educational system. They turned our fully competent engeneers and technicians. It is unclear why with a trained work force, the Soviet Union performed so poorly economically. We can not think of one non-military manufactured item that could be sold in a competitive international market. This is an amazing fact in an industrial complex as large as the Soviet Union. Here we can think of only one reason for this. The Soviet system stifiled individual iniative.

Innovation

Military spending in the West eventually benefitted the larger economy. The same was true of the space effort. Scientific innovations eventually found their way into the consumer economy. The closed Soviet system and concern with security made this much more unlikely. Thus an important potential source of innovation did not operate in the Soviet Union. This was one factor in Soviet consumer products falling so far behind those made in Japan and the West. Another factor is that Soviet managers were not incouraged to innovate. There are always the chance that innovations would fail. The results during the Soviet era could be arrest anf the Gulag or even execution. With De-Stalinzation the penalties were not as draconian, but the dynamics of a conservative beaureaucracy still did not incourage innovation. A reader writes, "The other week I heard the story of the modernisation of television production. State of the art manufacture had been bought from Germany to make black and white television recievers! This was at a time the world was investing in colour TV manufacture." One has to wonder why a nation competing in the Space Race with America would need to have the Germans establish a television manufacturing company. Also notable is that a country buying technology raher than developing it internally is always the developmental curve.

Unproductive Sectors

Huge resources were devoted to an unproductive beaureacracy and equality unproductive military and security services.

Transportation

The Soviet Union has one of the most poorly developed transportation systems outsidethe Third World. This was in fact one of the reasons the the NAZI invasion faltered in World War II. Both before and afer the War, manufacuring plants were often sited on the basis of strategic and political reasons. This greatly streesed the transportation network and increased costs. he problem of poor transportation prevented regular supplies of parts reaching the place of assembly.

Consumer Demand

Stalin's Five Year Plans were at the heart of the Soviet economy. The Plans focused on heavy industry and the military. Production of consumer goods was set far below actual demand. And although Soviet planners increased production of consumer goods after Stalin's death (1953), it never aprroached demand. The image here illustrates the longing for consumer goods by the Siviet people (figure 1). But more is involved here than just weather Soviets cuituzens were fashionably dressed or had all the consumer baubles they desired. Without allowing consumer demand to play a role in the ecomomy, the force of creative destruction never acted to eliminate wasteful and unproductive state enterprises. There are almost unbelieveable accouts about factory owners having a directive to make goods for which there was no demand. Once made and quota fullfilled they could not be sold so metal products might be melted down to make something for which there was a market. And not uncommonly the value of manufactured goods was less than the value of the raw materials used to make them. A reader writes, "I recall a conversation about 1992 with a Polish friend. He was talking about the Russian Record Industry. It seems a very costly investment had taken place in which new plant to press LP records had been built. Unfortunately this was at the time the West had started CD audio disc manufacture. The investment would be short lived because by then even in Russia Japanese electronic goods had replaced the Soviet manufacture of radios and record players." The total separation of economic decessions and consumer demand resulted in costly, and ultimately wastefull investments like this. A reader also writes, "I was shown around a Polish Electronic company. The manufacturing area was cleared of machinery and it was just factory space. A few years previously it had been a thriving electrical engineering factory employing 1000's of workers. I was shown the company's Museum. The audio equipment looked first rate and was very solidly built. All had been swept away by the cheaper more appealing products from Japan."







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Created: 5:37 PM 4/27/2005
Last updated: 4:26 PM 1/28/2016