Country Listing

Soviet Union Table of Contents

Soviet Union


Socialist theory provides no practical guidelines or objective criteria for determining priorities for the various economic sectors and ensuring balanced growth of the entire economy. The direction of economic development depends upon decisions made by planners on the basis of their evaluation of the country's needs, taking into account political, military, and other noneconomic considerations.

Past Priorities

The Bolsheviks (see Glossary), who assumed power in late 1917, sought to mold a socialist society from the ruins of old tsarist Russia. This goal was ambitious and somewhat vague; Karl Marx and Friedrich Engels, who developed Marxism (see Glossary), provided no blueprints for specific economic policies and targets. Chaotic conditions produced by World War I and subsequent struggles during the Civil War (1918-21) made pursuit of coherent policies difficult in any case. The economic policies initially adopted by the regime were a mixture of principle and expedience.

Soon after taking power, the regime published decrees nationalizing the land, most industry (all enterprises employing more than five workers), foreign trade, and banking. At the same time, for tactical reasons, the government acquiesced in the peasants' seizure of land, but the new leaders considered the resulting fragmented parcels of privately owned land to be inefficient.

Beginning in 1918, the government made vigorous but somewhat haphazard efforts to shape and control the country's economy under a policy of war communism (see Glossary). But in 1920, agricultural output had attained only half its prewar level, foreign trade had virtually ceased, and industrial production had fallen to a small fraction of its prewar quantity. Such factors as the disastrous harvest of 1920, major military actions and expenditures by the Red Army, and general wartime destruction and upheaval exacerbated the economy's problems.

In 1921 Vladimir I. Lenin called a temporary retreat from application of the ideological requirements of Marxism-Leninism. His new approach, called the New Economic Policy (NEP), permitted some private enterprise, especially in agriculture, light industry, services, and internal trade, to restore prewar economic strength. The nationalization of heavy industry, transportation, foreign trade, and banking that had occurred under war communism remained in effect.

In the late 1920s, Stalin abandoned NEP in favor of centralized planning, which was modeled on a project sponsored by Lenin in the early 1920s that had greatly increased the generation of electricity. Stalin sought to rapidly transform the Soviet Union from a predominantly agricultural country into a modern industrial power. He and other leaders argued that by becoming a strong centrally planned industrial power, the country could protect itself militarily from hostile outside intervention and economically from the booms and slumps characteristic of capitalism (see Industrialization and Collectivization , ch. 2).

The First Five-Year Plan (1928-32) focused rather narrowly upon expansion of heavy industry and collectivization of agriculture. Stalin's decision to carry out rapid industrialization made capital-intensive techniques necessary. International loans to build the economy were unavailable, both because the new government had repudiated the international debts of the tsarist regime and because industrialized countries, the potential lenders, were themselves coping with the onset of the Great Depression in the early 1930s. Stalin chose to fund the industrialization effort through internal savings and investment. He singled out the agricultural sector in particular as a source of capital accumulation.

The First Five-Year Plan called for collectivization of agriculture to ensure the adequacy and dependability of food supplies for the growing industrial sector and the efficient use of agricultural labor to free labor power for the industrialization effort. The regime also expected collectivization to lead to an overall increase in agricultural production. In fact, forced collectivization resulted in much hardship for the rural population and lower productivity. By 1932 about 60 percent of peasant households had joined state farms or collective farms. During the same period, however, total agricultural output declined by 23 percent, according to official statistics. Heavy industry exceeded its targets in many areas during the plan period. But other industries, such as chemicals, textiles, and housing and consumer goods and services, performed poorly. Consumption per person dropped, contrary to plan the planned rates pf consumption.

The Second Five-Year Plan (1933-37) continued the primary emphasis on heavy industry. By the late 1930s, however, collectivized farms were performing somewhat better (after reaching a nadir during the period 1931-34). In 1935 a new law permitted individual peasants to have private plots, the produce of which they could sell on the open market. According to official statistics, during the Second Five-Year Plan gross agricultural production increased by just under 54 percent. In contrast, gross industrial production more than doubled.

The Third Five-Year Plan (1938-41) projected further rapid industrial growth. The government soon altered the plan, however, in an attempt to meet the growing danger of war, devoting increasing amounts of resources to armaments. When the country went to war with Finland (1939-40), serious disruptions occurred in the Soviet transportation system. Nonetheless, during these years the economy benefited from the absorption of Estonia, Latvia, Lithuania, Bessarabia, and the eastern part of Poland and from the growing trade with Germany that resulted from the 1939 Nazi-Soviet Nonaggression Pact (see Glossary; Prelude to War , ch. 2).

After the German invasion of 1941, damage to the economy in both human and material terms was devastating. The regime virtually abandoned the Third Five-Year Plan as it sought to mobilize human and material resources for the war effort. During World War II, an increasing proportion of products and materials were allocated centrally, and Gosplan took over more of the balancing and allocation plans. Wartime economic plans did not officially replace the traditional planning process but were simply superimposed as needed to cover activities and goods essential to the war effort (see The Great Patriotic War , ch. 2).

The Fourth Five-Year Plan began in 1945. During the early years of the period, attention focused on repair and rebuilding, with minimal construction of new facilities. Repair work proceeded briskly, with spectacular results. The country received no substantial aid for postwar reconstruction, Stalin having refused to consider proposals for participation in the Marshall Plan (see Glossary) in 1947. Hungary, Bulgaria, Romania, and especially defeated Germany made reparations payments to the Soviet Union, however, consisting in large part of equipment and industrial materials. Entire German factories and their workers were brought to the Soviet Union to train Soviet citizens in specialized work processes. Although the government never published definitive statistics, an authoritative Western assessment estimated the value of reparations at an average of 5 billion rubles per year between 1945 and 1956. The exertions of the country's inhabitants, however, coupled with ambitious economic strategies, proved most crucial for the recovery.

During the war years, the government had transferred substantial numbers of industrial enterprises from threatened western areas to Asian regions of the country. After the war, these facilities remained at their new sites as part of an effort to promote economic development. These locations had the advantage of being near raw materials and energy sources. The government also deemed it strategically sound to have the important installations of the country distributed among several regions.

Like earlier plans, the Fourth Five-Year Plan stressed heavy industry and transportation. The economy met most of the targets in heavy industry. The performance of agriculture again lagged behind industry. Western observers believed that factors in agriculture's poor performance included a paucity of investment, enforcement of a strict quota system for delivery of agricultural products to the state, and tenuous linkage between wages and production, which deprived farmers of incentives. Housing construction, community services, and other consumer items also lagged noticeably. During the final years of the plan, Stalin launched several grandiose projects, including building canals and hydroelectric plants and establishing tree plantations in the Armenian, Azerbaydzhan, Georgian, and Ukrainian republics and in the Volga River area of the Russian Republic to shield land from drying winds. Collectively, these efforts were referred to as "the Stalin plan for the transformation of nature."

Throughout the Stalin era, the pace of industrial growth was forced. On those occasions when shortages developed in heavy industry and endangered plan fulfillment, the government simply shifted resources from agriculture, light industry, and other sectors. The situation of the consumer improved little during the Stalin years as a whole. Major declines in real household consumption occurred during the early 1930s and in the war years. Although living standards had rebounded after reaching a low point at the end of World War II, by 1950 real household consumption had climbed to a level only one-tenth higher than that of 1928. Judged by modern West European standards, the clothing, housing, social services, and diet of the people left much to be desired.

Although Stalin died in 1953, the Fifth Five-Year Plan (1951- 55) as a whole reflected his preoccupation with heavy industry and transportation, the more so because no single leader firmly controlled policy after Stalin's death (see Collective Leadership and the Rise of Khrushchev , ch. 2). In many respects, economic performance pleased the leadership during the period. According to government statistics (considered by Western observers to be somewhat inflated), the economy met most growth targets, despite the allocation of resources to rearmament during the Korean War (1950-53). National income increased 71 percent during the plan period. As in previous plans, heavy industry received a major share of investment funds. During the final years of the Fifth Five-Year Plan, however, party leaders began to express concern about the dearth of consumer goods, housing, and services, as they reassessed traditional priorities. The new prime minister, Georgii M. Malenkov, sponsored a revision of the Fifth Five-Year Plan, reducing expenditures for heavy industry and the military somewhat in order to satisfy consumer demand. The newly appointed first secretary (see Glossary) of the party, Khrushchev, launched a program to bring under cultivation extensive tracts of virgin land in southwestern Siberia and the Kazakh Republic to bolster fodder and livestock production. Although Malenkov lost his position as prime minister in 1955, largely as a result of opposition to his economic policies, the austere approach of the Stalin era was never revived.

An ambitious Sixth Five-Year Plan was launched in 1956. After initial revision, prompted at least in part by political considerations, the regime abandoned the plan in 1957 to make way for a seven-year plan (subsequently reduced to a five-year plan) that focused particularly on coal and oil production and the chemical industry. Khrushchev, who became principal leader after 1956, took particular interest in these areas of production. The seven-year plan provided substantial investment funds--over 40 percent of the total--for the eastern areas of the country. Khrushchev also sponsored reforms to encourage production on the private plots of collective farmers.

During the seven-year plan, industrial progress was substantial, and production of consumer durables also grew. The national income increased 58 percent, according to official statistics. Gross industrial production rose by 84 percent, with producer goods up 96 percent and consumer goods up 60 percent. Growth rates slowed noticeably during the final years of the plan, however. Party leaders blamed Khrushchev's bungling efforts to reform the centralized planning system and his tendency to overemphasize programs in one economic sector (such as his favorite, the chemical industry) at the expense of other sectors (see Reforming the Planning System , this ch.). Agriculture's performance proved disappointing in the 1960s; adverse weather in 1963 and 1965, as well as Khrushchev's interference and policy reversals, which confused and discouraged the peasants' work on their private plots, were contributing factors. Khrushchev's economic policies were a significant, although not sole, reason for his dismissal in October 1964.

The Eighth Five-Year Plan (1966-70), under the leadership of Khrushchev's successor as party head, Brezhnev, chalked up respectable growth statistics: national income increased 41 percent and industrial production 50 percent, according to government statistics. Growth in producer goods (51 percent) outpaced that in consumer goods (49 percent) only slightly, reflecting planners' growing concern about the plight of consumers. During the late 1960s, Brezhnev raised procurement prices for agricultural products, while holding constant retail prices for consumers. Agriculture thus became a net burden on the rest of the economy. Although production increased, the sector's performance remained unsatisfactory. The country had to import increasing amounts of grain from the West.

In the Ninth Five-Year Plan (1971-75), a slowdown in virtually all sectors became apparent (see The Economy , ch. 2). National income grew only 28 percent during the period, and gross industrial production increased by 43 percent. The 37 percent growth rate for the production of consumer goods was well below the planned target of 45.6 percent. Problems in agriculture grew more acute during the period. The gap between supply and demand increased, especially for fodder.

Results for the Tenth Five-Year Plan (1976-80) were even more disappointing. National income increased only 20 percent and gross industrial production only 24 percent. The production of consumer goods grew a meager 21 percent. Western observers rated the growth of the country's gross national product ( GNP--see Glossary) at less than 2 percent in the late 1970s.

For Soviet leaders, the modest growth rates were a perplexing problem. The ability to maintain impressive growth rates while providing full employment and economic security for citizens and an equitable distribution of wealth had always been one area in which supporters of the Soviet system had argued that it was superior. Soviet leaders could point to many achievements; by virtually any standard, the gap between the Soviet economy and the economies of other major industrialized powers had narrowed during the years of Soviet rule. Throughout the early decades of the economy's development, plans had emphasized large, quick additions of labor, capital, and materials to achieve rapid, "extensive" growth.

By the 1970s, however, prospects for extensive growth were limited. During the 1960s, the Soviet Union had shown the fastest growth in employment of all major industrial countries, and the Soviet Union together with Japan had boasted the most rapid growth of fixed capital stock. Yet Soviet growth rates in productivity of both labor and capital had been the lowest. In the 1970s, the labor force grew more slowly. Drawing on surplus rural labor was no longer possible, and the participation of women in the work force was already extensive. Furthermore, the natural resources required for extensive growth lay in areas increasingly difficult, and expensive, to reach. In the less-developed eastern regions of the country, development costs exceeded those in the European parts by 30 percent to 100 percent. In the more developed areas of the country, the slow rate at which fixed assets were retired was becoming a major problem; fixed assets remained in service on average twice as long as in Western economies, reducing overall productivity. Nevertheless, in the late 1970s some Western analysts estimated that the Soviet Union had the world's second largest economy, and its GNP continued to grow in the 1980s (see table 31, Appendix A).

Serious imbalances characterized the economy, however, and the Soviet Union lagged behind most Western industrialized nations in the production of consumer goods and services. A stated goal of Soviet policy had always been to raise the material living standards of the people. Considerable progress had been made; according to Western estimates (less flattering than Soviet), from 1950 and 1980 real per capita consumption increased 300 percent. The country's leaders had devoted the bulk of the available resources to heavy industry, however, particularly to "production of the means of production." Levels of consumption remained below those of major capitalist countries and most of the socialist countries of Eastern Europe. By the late 1970s, policy makers had recognized the need to improve productivity by emphasizing quality factors, efficiency, and advanced technology and tapping "hidden production reserves" in the economy.

Concern about productivity characterized the Eleventh Five-Year Plan (1981-85). The targets were rather modest, and planners reduced even those after the first year of the period. Achievements remained below target. The plan period as a whole produced a modest growth rate of 3 to 4 percent per year, according to official statistics. National income increased only 17 percent. Total industrial output grew by 20 percent, with the production of consumer goods increasing at a marginally higher rate than producer goods. Agricultural output registered a meager 11.6 percent gain.

Data as of May 1989

Country Listing

Soviet Union Table of Contents