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October 30, 1998

An Autopsy of the Soviet Economy

Soviet documents now in the Hoover Archives reveal seventy years of economic bungling. By Gordon M. Hahn.


From the start, Soviet economic managers were oblivious to the economic farce they were directing. During the first Five-Year Plan (1928–1932), V. V. Kuibyshev, head of the USSR GosPlan (State Planning Commission), sent the Associated Press a report stating that the plan’s results put to rest the claims “uttered by the most prominent bourgeois economists and politicians . . . that the projections of the five-year plan are ‘unreal,’ ‘utopian,’ ‘fantastic’. . . just another Bolshevik ‘bluff.’” In fact, the Soviet socialist system’s claims were just as the “bourgeois economists” had predicted. As the Soviet communist regime veered toward collapse, some of its leaders belatedly became aware that the market, as General Secretary Mikhail Gorbachev himself put it in 1990, is “one of the great achievements of humankind.” Recently declassified documents in the Hoover Archives reveal not only the surreal essence of the Soviet economic order but also that the Soviet leadership had increasingly little room to maneuver in its desperate effort to compete economically with capitalist economies.

THE FIRST FAILURES
The first Five-Year Plan, like its successors, failed, largely as the result of the bureaucrats’ attempting to micromanage every facet of the economy from their offices in Moscow. Even the modest successes—won at a high human cost—were in large part the product of exaggeration and fantasy, as archival microfilms now at the Hoover Institution show. The February 1, 1933, Politburo session, after reviewing the top-secret report on the plan’s disappointing results, banned “any agencies, republics, or regions from publishing any other reports, either consolidated, industrial, or regional” until the official report was issued. All the subsequent reports related to the plan’s results were published only with permission from Kuibyshev’s GosPlan, with “all agencies forward[ing] all materials and reports on the results . . . in their possession to GosPlan.” The leadership thus ensured that the false results could not be checked with other data. The tendency to fabricate economic figures at the top was soon a common feature of the entire system, leading to the failure of the next carefully elaborated five-year plan and so on.

FABLES, FOIBLES, AND FAILURES
Under Khrushchev the Soviet regime became “kinder and gentler.” The relaxation of repression, however, required a “social contract” that amounted to Khrushchev’s promising, in 1961, that Soviet industrial and agricultural production and per capita income would overtake that of the United States by 1980. Khrushchev increased production by increasing labor, capital, and natural resource inputs, not by increasing efficiency.

Khrushchev’s efforts to eliminate layers of bureaucracy failed miserably. At a factory project in the Russian province of Penza in the late 1950s, local authorities, far behind in the construction schedule, falsely reported to Moscow that the factory had been completed and was in production. For more than a year Moscow received bogus reports on output, fulfillment of the state plan’s quota, and other indicators. In truth, construction of the factory was not even close to completion.

Gross inefficiencies in the agricultural sector forced Khrushchev to raise bread prices in 1962, provoking civil unrest in the southern city of Novocherkassk. The party ordered the army to put down the demonstrations by force, but the troops’ commander committed suicide rather than fire on the crowd.

BROKEN PROMISES AND MONUMENTAL FAILURES
The gap between Khrushchev’s utopian words and the Soviet economic system’s mundane deeds threw into sharp relief the monumental scale of socialism’s failures. On the eve of the 1980s, instead of being able to proudly report surpassing the American economy, the Soviet leadership sat behind closed doors and read a top-secret report on the economy’s failings. In December 1979, the Soviet government delivered a 126-page economic report to the party leadership detailing the economic, demographic, and social problems that needed to be resolved to avoid economic contraction. The report highlighted the enormous gap between Soviet economic performance and that of the United States and Japan and suggested that the Soviet economy would continue to stagnate until reforms were implemented. The regime then attempted to introduce piecemeal changes that tended to ape market economies without providing the structural bases that makes them work.

For example, to address a growing labor shortage that left approximately 5 million jobs unfilled in a country with a population of only 270 million, the report endorsed using such innovations as part-time work, pay by the hour, reducing the number of women performing heavy manual labor, and using seasonal employment because these methods worked in the U.S. economy. The labor shortage was caused by the bulk of the industrial plants being located in the European republics where birthrates were low. Although the leadership had known of this demographic imbalance for most of the decade, it had failed to reduce factory construction in those republics. In contrast, in the six Muslim republics and Moldova there was a population explosion but no plant construction.

The low-tech nature of Soviet industrial and agricultural production was the result of the constraints placed on research and development in a system so obsessed with secrecy and so thoroughly bureaucratized that it was incapable of competing with developed capitalist economies. The rigid education system and bureaucratized method of assigning personnel to jobs led to a shortage of engineers. The report notes that the difference between the number of workers with higher and middle-level specialized educations deemed necessary under the plan “for all ministries and departments” and the number of applications amounted to a shortfall of 72,000 engineers. Some 137,000 engineers already in place lacked a higher and middle-level specialized education. To address the low technological level of production, the government proposed investing in the antiquated and resource-insatiable machine-building sector and providing retraining programs for the labor force, thus creating yet another huge bureaucracy under an “all-state system.” The state socialist system continued to produce its best manufacture—bureaucracies.

BUREAUCRATIC BOTTLENECKS
The command economy’s micromanagement created enormous bureaucratic bottlenecks, in both decision making and implementing policy, which brought forth a small coterie of reformers from among the least cynical party apparatchiki. In 1979, the Politburo (some months after Mikhail Gorbachev was appointed to it from his post as territory party committee first secretary in Stavropol) examined a huge backlog of unimplemented party decisions that were clogging the management apparatus. As of August 1979, the Politburo had 369 backlogged decisions to see through the apparat to realization, including sixty-eight resolutions from the year before, thirty from 1977, seventeen from 1976, four from 1975, two from 1974, five from 1973, one from 1972, and two from 1969! The Party Secretariat had 162 resolutions left unfulfilled, including fourteen that had been two years or more in the works, some from 1970. Some seventy-five documents were unresolved in the Council of Ministers, which administered the economy on behalf of the party, and “a considerable number” were held up in the infamous GosPlan.

One of those documents, a March 1979 proposal from Gorbachev’s native Stavropol calling for decentralizing local water and irrigation management responsibilities to the level of the Russian republic was held up, the Politburo resolution complained, for five months because a plethora of bodies—the Politburo, the Secretariat, the USSR, and the Russian governments—had to review it. Since the issue was agricultural and the proposal originated from his party committee in Stavropol, it is certain that Gorbachev, as party agricultural secretary, was involved. Gorbachev, while still in Stavropol, was frustrated with the Moscow bureaucratic morass and had been known to storm down the halls of the Central Committee (CC) apparatus headquarters in Moscow cursing the lethargy of government bureaucrats. Indeed, most of the documents held up in the government’s apparat were from his CC Agricultural Department, three-quarters of them signed by him personally. Gorbachev’s reformist instincts could only have been sharpened, witnessing the bureaucracy’s foibles firsthand for five more long years. The Soviet command system and its failures thus unwittingly sparked the reforms that put an end to this regime.


Gordon M. Hahn is coordinator of Russian Archives Research Projects at the Hoover Institution.


© 1998 by the Board of Trustees of the Leland Stanford Junior University.

This article is based on documents acquired through the Hoover Institution’s joint microfilming project with the Russian State Archives. The documents cited are in fond 89, the Collection of Recently Declassified Documents at the Center for the Preservation of Contemporary Documentation of the Russian Archives. Microfilmed copies of those documents are housed at the Hoover Institution Archives; in addition, a detailed guide to fond 89 is available at the Hoover Institution Archives.

Available from the Hoover Press is Dear Comrades: Menshevik Reports on the Bolshevik Revolution and the Civil War, Vladimir N. Brovkin, editor and translator. To order, call 800-935-2882.