Center For The National Interest The National Interest

Center for the National Interest
The Economic Fallacy

Author(s): Vladimir Kontorovich
Source: The National Interest, No. 31, Special Issue: The Strange Death of Soviet
Communism: An Autopsy (Spring 1993), pp. 35-45
Published by: Center for the National Interest
Stable URL: https://www.jstor.org/stable/42894855
Accessed: 06-01-2019 11:01 UTC
JSTOR is a not-for-profit service that helps scholars, researchers, and students discover, use, and build upon a wide
range of content in a trusted digital archive. We use information technology and tools to increase productivity and
facilitate new forms of scholarship. For more information about JSTOR, please contact support@jstor.org.
Your use of the JSTOR archive indicates your acceptance of the Terms & Conditions of Use, available at
https://about.jstor.org/terms
Center for the National Interest is collaborating with JSTOR to digitize, preserve and
extend access to The National Interest
This content downloaded from 14.139.45.244 on Sun, 06 Jan 2019 11:01:33 UTC
All use subject to https://about.jstor.org/terms
The Economic Fallacy
Vladimir Kontorovich
Whatever Sovietologists
happens in the West,
to recognize
it such
alw
that unmistakable
was foreseen signs of the coming
andcollapse d
-Leo seems seriously delinquent.
Tolstoy, War and
This "economic" explanation of the col-
lapse, however, is, at best, incomplete. Poor
economic performance is commonplace in
crisis gripped the Soviet Union the world, while the peacetime collapse of a
A HIGHLY crisis during
during thegripped
last threetheyears
VISIBLE
of its last the three Soviet years economic Union of its political system is quite rare. Instead of disin-
existence. Western reporting from Moscow tegrating under the weight of economic
told stories of long lines, empty shelves, and problems, societies find ways of mitigating
fear of starvation. Many official decrees some of them and learning to live with oth-
designed to save the economy were issued in ers. An obvious example of this is how capi-
rapid succession. Intellectuals openly talist societies have historically adapted to
attacked the theory and practice of central periodic declines in production, paralleled by
planning. increasing unemployment.
All this has supported the subsequent Poor economic performance alone can-
conclusion that the collapse of the Soviet not directly and immediately destroy a politi-
system was brought about by economic fail- cal system. That requires political action - an
ure. The Soviet economy had long been uprising, a failed reform, an invasion, or
wasteful, unresponsive to consumer demand, some similar disruption. An economic expla-
and sluggish in adopting new technology. nation of the collapse must connect causally
The resources that fueled the nation's the political actions which destroyed the
expansion were being exhausted. Only Soviet
a few system to their economic context.
Such a connection is far from self-evident.
years ago, of course, such a characterization
would have been considered unbalanced, if Economic failure alone, then, cannot
not blatantly biased. Now, lookingexplain
back the Soviet collapse, unless that expla-
from the ruins of the ussr, it seems nation
a fair incorporates answers to two ques-
summary of the progressive buildup totions:
the What were the serious economic prob-
inevitable finale,1 and the failure of lems with which the Soviet system learned to
live? How, if at all, were the political devel-
Vladimir Kontorovich is assistant professor of opments that destroyed the system related to
economics at Haverford College and co-edi- the underlying economic circumstances?
tor, with Michael Ellman, of The
^ee, for example, a series of articles in Voprosy
Disintegration of the Soviet Economic System
(London: Roudedge, 1992). ekonomiki , nos. 4-6, 1992.
Was It Always So Inefficient ? be weak compared to the capitalist countries.
This was the most conclusive evidence avail-
able of the inferior efficiency of the Soviet
The Soviet corerulerule
Soviet waslegitimation was provided by the of
provided by the economy and was generally accepted by
Marxist thesis that public ownership of the economists studying the USSR.
means of production, and the unified direc- Even so, low levels of efficiency and the
tion of production toward public objectives, comparatively slow rate of its improvement
would make a socialist economy more effi- did not in themselves presage the economy's
cient than a capitalist one, with its anarchic downfall. The Soviet economy lived - and
pursuit of private gain. The regime was even flourished - for decades with these con-
understandably eager to supply data support- ditions. At the time when the evidence of the
ing this thesis. Of course, the Soviet Union Soviet economy's inefficiency was being
was always poorer and less efficient than the uncovered, it was growing at a healthy pace.
developed capitalist countries, a condition it The CIA estimated annual GNP growth at 5.8
inherited from the Russian Empire. The percent in 1956-60, while according to
superior efficiency of the socialist economic Gregory Khanin national income was grow-
system was to be demonstrated by the coun- ing at 7.2 percent a year in the 1950s.
try's fast growth. A full-fledged system of Though modest compared to capitalist
central planning was introduced under Stalin
in the late 1920s and early 1930, and for sev- 2See, for example, David Granick, The Red
eral decades appeared to be justifying its Executive (New York: Columbia University
architects' expectations. Press: 1954), and Aleck Nove, "The Problem
In the West, competing theoretical argu- of 'Success Indicators' in Soviet Industry,"
ments for and against the superior efficiency Economic a, February 1958.
of socialism were being advanced by leading 3 See Abram Bergson, The Real National Income of
economists such as Schumpeter and Hayek Soviet Russia since 1928 (Cambridge: Harvard
well into the 1940s. By the 1950s, the accu- University Press, 1961). The Bergson
mulating empirical evidence on the Soviet methodology, anchored in neoclassical eco-
economy started casting doubts on both the nomics, was used by the CIA to produce reg-
official claims of success and theoretical ular estimates of Soviet growth, which were
arguments for the superiority of central plan- consistently lower than the official ones
ning. Detailed studies of the operation ofissued in Moscow. The estimates of the
enterprises, central planning, and the supply Bergson school were higher than the compet-
system revealed grossly inefficient practices.2 ing ones of Naum Jasny and G. W. Nutter.
Western recalculations of the official Soviet The heated debate about the appropriate
growth rates found them to be significantly methods of estimation subsided in the 1960s
lower than reported.3 with the general acceptance of Bergson's

In the late 1960s and early 1970s, Abram approach, but reemerged in the 1980s, with
Bergson used these calculations to analyze some Soviet authors, most notably Gregory
the sources of growth.4 Bergson determined Khanin, producing estimates of the Soviet
the shares of the GNP growth rate con- growth lower than those of the CIA. In what
tributed respectively by the growth of labor, follows, I shall use CIA estimates, as well as
capital, and productivity. The growth of the the alternative estimates of Khanin.
Soviet economy turned out to be overly 4Bergson, Planning and Productivity under Soviet
dependent on ever-increasing inputs of capi- Socialism (New York: Columbia University
tal and labor, compared to those required in Press, 1968) and Productivity and the Social
capitalist economies. The third source of System - the USSR and the West (Cambridge:
growth, increases in efficiency, was found to Harvard University Press, 1977).
36
economies at the same level of development, It is understandable that economists
these growth rates were higher than those of were uneasy about extrapolating such a sim-
the richest economies in the same period. In ple trend over a long period of time. The
other words, the Soviet economy was closing intuition developed in studying capitalist
the gap between itself and the mature capi- economies led to the expectation that there
talist states of the West. would inevitably be a corrective reaction that
After the late 1950s, Soviet growth rates would reverse the trend. But the Soviet econ-
slowly declined for two decades. One reason omy lacked a mechanism of self-correction.
for this trend was a change in management Any change in course could only come from
styles, from that of Stalin to that of the top leadership, and during Brezhnev's
Brezhnev. Systematic terror ended and the long and stagnant rule, the slowdown trend
rulers of the country became increasingly remained uninterrupted.
more forgiving of the failures of their As a result the country was no longer
employees at all levels - ministers, plant "catching up with the West." This would
managers, and workers. The latter responded have been a serious blow to the self-confi-
by relaxing their efforts. Central planners dence of the party's top echelon, had they
experienced ever greater difficulties in direct- perceived it at the time. Public admission of
ing a growing economy. The growing bur- the permanent laggard status would have cre-
den of military expenditures and the exhaus- ated ideological difficulties, but - it must be
tion of natural resources were among the emphasized again - would not in itself have
other likely causes of declining growth rates. precipitated the collapse of the system. At
The slowdown was strikingly steady and any period, there are a number of poorer
persistent. Soviet industrial growth rates in economies that are not catching up with the
the period 1951-80 show little deviation from leaders, but their governments do not all col-
the downward trend. Such a stable process lapse. Convergence is most apparent among
should have been easy to recognize and the more developed countries, but even
extrapolate, but Gregory Khanin was the only there, raw data show no convergence in
one who did so, in his samizdat study circu- income per capita since 1973. In 1980-88,
lated in the mid-1970s. By the late 1960s, most West European countries, already lag-
Western economists had noted the slowdown ging behind the United States in income per
and were looking into its causes; but thosecapita, also experienced a slower growth of
concerned to forecast the future performancethis indicator than did the American econo-
of the Soviet economy seemed oblivious tomy. The gap between these countries and the
the possibility that the trend would continue. world leader was increasing, without causing
In the late 1970s, two large-scale econometric
appreciable political instability. Great Britain
models were used for making regular predic- in the last hundred years provides the best
tions, and a number of forecasts were alsoevidence that political stability is compatible
derived by other methods. Most of them pre- with increasing economic lag. What matters
dicted a continuation of the rates of growthis whether the absolute level of income in the
achieved in the early 1970s, ignoring the
country keeps increasing.
actual downward trend. All the forecasts dur- In the USSR in 1979-82 it probably was
ing this period were less accurate than the not. While the CIA estimated an annual GNP
naive extension of a straight line plotted growth of 1.4 percent for this period (still
through the rates of growth of the immediate higher than the 0.8 percent annual rate of
past. The record low rates of growth of 1979- population increase), Khanin saw a 2 percent
82 (calculated by the CIA to be 1.4 percent annual decline in 1981-82. The Politburo did
annually) turned out to be "the little surprise" not have the benefit of Khanin's estimates, of
which predated the big one by a decade. course. They used the official ones, which
showed a national income growth rate of 3.2 disproportions, capacity utilization and output
percent per year, hardly a cause for alarm.5 would turn up. Again, to the degree that poor
However, it is likely that they were paying harvests were due to bad weather, they too
attention to the output of selected products would not have lasted. A period of growth
measured in physical terms. Tons of steel, would have followed, and official growth
coal and petroleum, ton-kilometers of freight rates, positive in any case, would have shot up.
traffic, the number of units of various types The party could have claimed another victory.
of machinery, and similar magnitudes were at The commonly held view nowadays is
the heart of the central planning. The rulers that such an improvement could not have
must have been aware that the output of lasted long, and that the same trends which
most of these products was declining or stag- brought about the growth slowdown would
nant in 1979-82, a situation they would not have reasserted themselves, dragging the
want continued for a long time. economy back into stagnation or worse. (By
contrast, at the time only a minority of
Sovietologists recognized that the Soviet
Alternative Strategies
economy was in a serious condition. Witness
the reviews of Marshall Goldman's USSR in
Lenin, Soviet state,laidtheit down
Soviet state, laid founder
in his 1917it down in his of 1917 the Crisis)1 Yet, some recent research suggests
work The State and Revolution that the new that even the pre-Andropov economy may
state's economy should be organized "like have had some life left in it. A rapid improve-
one factory." A factory's performance cru- ment in grain yields occurred in 1981-86:
cially depends on the manager's personality, adjusted for weather fluctuations, they were
and so does that of a centrally planned econ- growing by 3.4 percent annually, compared
omy.6 In the final years of the Soviet "facto- to 1.9 percent in 1965-80. This spurt of
ry," four different managers ran it, each growth was apparently due to the adoption of
according to his lights. new agrotechnology in 1981. Could it be
A "business as usual" strategy was pursued that Brezhnev's much-ridiculed "Food
by Brezhnev through 1982, and by Program" actually bore some fruit?
Chernenko in 1984-85. There were no politi- The second strategy of the 1980s, pur-
cal challenges to this course. The country was sued by Andropov, addressed the root cause
at the height of its military power, enjoying its of growth slowdown: the degeneration of the
newly acquired "strategic parity." Dissidents command system. Under the slogan of
were suppressed and the population subdued. "tightening discipline," some of the ministers
The fact that this strategy ended only with the in charge of poorly performing sectors were
general secretary's natural death suggests that replaced. Sanctions for failure were
it could not be - or, at least, was not - chal-
lenged from within the ruling elite. "Business 5 See Gregory Khanin's "Economic Growth in the
as usual" was all the more feasible because, in 1980s" in Ellman and Kontorovich, The
the short run, the economy was set for a Disintegration of the Soviet Economic System
rebound. The contraction of 1979-82 was (London: Roudedge, 1992).
only in part caused by the long-run growth
6See eloquent argument to this effect in Phillip
slowdown. Other causes included a series of Hanson's From Stagnation to Catastroika :
poor harvests and a dip in industrial capacity Commentaries on the Soviet Economy , 1983-
utilization. The latter was part of the invest- 1991 , The Washington Papers/155 (New
ment cycle, in which the errors of planners in York: Praeger, 1992), pp. 37-38.
allocating investment created disproportions7Marshall I. Goldman, USSR in Crisis: The Failure
between capacities in tèchnologically related of an Economic System (New York: W.W.
sectors. Once planners started correcting the Norton and Co., 1983).
38
increased. This simple strategy was actively standard policy for a centrally planned econo-
pursued for only a short period, from my since Stalin's industrialization. It was
October 1982 to the summer of 1983, after based on the belief that the government could
which a terminally ill Andropov was unable identify "the leading link" that would pull up
to perform his duties. It caused growth to the rest of the economy, and force resources
rebound in a matter of months and provided to flow to the sector so designated. The
the momentum that carried the Soviet econ- machine-building sector was also commanded
omy through the 1980s. to be more innovative, to increase the share
In Khanin's estimate, the national of new products in its output to precisely pre-
income growth rate swung from -2 percent a scribed levels, by a series of steps. A state
year in 1981-82 to 1.8 percent in 1983-88. quality control system, transplanted from* the
The official industrial production growth rate military sector in January 1987, subordinated
gained one percentage point in 1983-85 com- quality control personnel at the manufactur-
pared with 1981-82. Income per capita was ing plants to the State Committee for
growing in 1983-88 at an annual rate of 0.8 Standards, instead of to the plant managers.
percent (Khanin, national income) or 1.2 per- This made quality inspectors more willing to
cent (CIA, gross national product). The CIA turn down substandard products.
estimated total factor productivity growth to Command policies are blunt but fre-
be very slow, but this was the result of a tragi- quently effective tools, with strong side
comic error in handling Soviet data on fixed effects. Abrupt shifts of investment have long
capital. Of course, the official Soviet data by been known to aggravate sectoral imbalances
which the rulers navigated presented an even and result, at least temporarily, in slower
better picture. To the best of our knowledge, growth. The strategy of acceleration did just
the majority of the population was satisfied that, while pushing up inflation. Its expected
with its economic situation. benefits, in the form of a stronger machine-
This was the state of the economy when building sector, never materialized because
Gorbachev assumed power. Just four years the government switched strategies midway.
later, the economy was sinking into a pro- The anti-alcohol campaign improved occupa-
found recession, amid accelerating inflation tional safety and reduced street crime, while
and worsening shortages of consumer goods. adding to the budget deficit and thus acceler-
Gorbachev's initial economic policies ating inflation. Barely two years after its
were characterized by strong push, poor adoption, the command strategy was aban-
preparation, and rapid succession - a doned, with the rulers unleashing increasing-
"Napoleonic preference for action" in Phillip ly vehement attacks on the ideology underly-
Hanson's words. They were being reversed, ing it. In 1987, an alternative strategy of "rad-
cancelled or superseded within a year or two ical economic reform" was announced.
of their introduction. In his first two or three
years in office Gorbachev pursued what
Reform: Beware the Granted Wish
would come to be derisively called the "com-
mand-administrative" course. His speeches
stressed discipline, and extensive personnel REFORMforfordealing
dealing
withWAS with economy
the Soviet the the Soviet third economy strategy
changes in the top echelons of the hierarchy that was tried within the space of a few years.
gave some credibility to that rhetoric. It should be understood that, far from being
The first major strategy announced by a desperate response to a crisis, economic
the new general secretary was the "accelera- reform was part of the everyday functioning
tion" of economic growth, to be achieved by of the Soviet system. Central planning itself
a massive shift of investment into the was created in the blizzard of reforms in the
machine-building sector. This had been a
late 1920s and early 1930s. Having designed
the economy from scratch, the rulers them it represented rationality and economic
retained the exclusive right to organizational efficiency, evolutionary change, and a corre-
changes. Institutions could not simply evolve late of political liberalization. It was both the
with the changing economy; any change had profession's prescription for solving the
to be introduced as a reform from above. USSR's economic problems and also its predic-
Reforming the economy was also in tune
tion of the likely future. The past failures of
such reforms were attributed to bureaucratic
with the official ideology: as technological
change transformed "productive forces," eco-resistance. Reform was seen as a feasible and
even unavoidable - though politically diffi-
nomic reform was to adjust "relations of pro-
duction" accordingly. cult - step. Thus most Sovietologists cheered
Reforms reflected confidence in the when Gorbachev took it.
strength of the system and its potential for There were elements of market-style
improvement, and the revealing expression changes even during the "command" period
"further perfecting" was a standard part of
of Gorbachev's reign. In 1986 there was a
reform decree titles. Some of the most failed attempt to give farm managers discre-
sweeping economic reforms had been
tion in disposing of output that exceeded
announced in the late 1950s, the goldensome
age firm target. In 1983, Andropov initiat-
of Soviet society. This was the era ed of
a "large-scale economic experiment" in
Sputnik, when national income grewindustry,
by consisting of organizational
more than 7 percent a year. In the 1970s,
changes with a decentralizing flavor. They
when economic performance was much were proven worthless by several years of
testing. In 1987, Gorbachev enacted these
weaker than in the 1950s, reforms, though
numerous, were timid and inconsequential.
changes on an economy-wide basis.
One often-mentioned reason for this was Gorbachev's own "radical" reform was
announced in 1987 and introduced as of
Brezhnev's apparent satisfaction with the
status quo. Another was the rulers' view,
January 1, 1988. The blueprint of reform was
riddled with inconsistencies. The announced
supported by reference to the Czechoslovak
events of 1968, that the system was so fragile
aims of reform were to increase the indepen-
dence of the enterprise managers - and, at
that it could be shattered by serious reforms.
An important class of reforms consisted the same time, to strengthen central control
in grafting market elements onto a centrally over the economy. While the rhetoric of
planned economy. This was first tried reform in deplored the command principle, the
Eastern Europe in the late 1950s, and in the legislation preserved it in a poorly disguised
USSR in 1965. Market-inspired changes form. Obligatory output targets were abol-
reduced the number of commands given ished, to but the state reserved the right to order
the producers and made them less detailed. some products, these orders being binding for
The importance of profit and other mone- the enterprises and covering most of their
tary indicators was stressed, and that of out-output. The state renounced liability for the
put targets in physical terms was downgrad- debts of the enterprise; yet if the enterprise
ed. These reforms weakened central plan-
ran losses, the ministry had to pick up the tab.
ning without actually introducing a marketThe ministry could not tell enterprises what
environment, for elements of the market did
to do, but was held responsible for all the
not work in an entirely alien system, aspects
or of enterprise activity. The Law of the
worked in perverse ways. Economic perfor-
Enterprise, aimed at giving managers broad
mance suffered, and reforms had to bediscretion, stipulated managerial duties down
reversed or sidetracked. to such petty details as two-shift operation and
Market-oriented reform held special fas-encouraging cultivation of kitchen garden
cination for most Westefn Sovietologists. Toplots by the employees. It could not work.
40
Three elements of reform proved to be official data were showing an extraordinary
the most destructive: managerial discretion contraction of 15-17 percent, and in the fol-
over the output in excess of the state order, lowing year the rate of decline of post-Soviet
flexibility in wage and price setting, and economies exceeded 20 percent.
strong incentives to earn above planned prof- While the economic policies in 1985-88
it. Taken together, they frequently allowed were destabilizing, it is hard to see how they
the managers to raise prices of their products could have led to this debacle. After all, the
and the wages of their employees while cut- system survived similar policy blunders
ting output. before. Examples include the first Five-Year
The reform gave another boost to infla- Plan (1928-32), the massive switch of invest-
tion, already picking up due to the "accelera- ment to chemical industry and hydroelectric
tion" program and the budgetary conse- power generation in the late 1950s, and the
quences of the anti-alcohol campaign. As the reform of 1965. In the past, the Soviet eco-
prices of most consumer goods and services nomic system contained and reversed
were fixed by government, the outpouring of destructive policies.
cash could not raise prices, as would have hap- Such attempts at containment and
pened in a market economy. Instead, inflation reversal were made this time too. By the
manifested itself in worsening shortages of end of 1988, the top officials had realized
consumer goods, with the highly visible sym- the danger of accelerating inflation. The
bol of bare store shelves. This was to be the obvious solution would have been to freeze
main source of popular disillusionment with or roll back both the acceleration program
Gorbachev's policies. and the "radical" reform. The whole appa-
ratus of central planning was still in place,
as were the Party, the KGB, and the other
The Primacy of Politics institutions needed for such a reversal. A
small step in that direction was actually
attempted with the program of financial sta-
The was was
initially
initiallycontraction less visible.
less visible. Soviet sta- Soviet of output sta- bilization in late 1988. Yet this and subse-
tistics estimated national income growth in quent decrees in the same spirit achieved
1988 at a healthy 4.4 percent and GNP at 5.5 nothing, and economic disintegration pro-
percent, and the CIA estimated that GNP ceeded unabated. In 1989 the government
increased by 2.2 percent. Only Khanin spot- lost control of the economy.
ted a contraction of national income in the The reason for this lies outside the econ-
second half of that year. In his estimate,omy, in the political and ideological spheres.
there was no growth for the year as a whole. The destruction of authority had actually
In the middle of 1989, top Soviet officials,started in 1986, with media criticism of man-
including the head of Gosplan, characterized agers, officials, and "bureaucrats." This was a
the economic situation as an emergency, andvintage communist campaign: high pitch,
data on key sectors of the economy indicated unrelenting, blanket demagogy. The boss-
a contraction. Yet official statistics still bashing campaign was accompanied by
attacks on the official ideology. Starting as
reported national income growth at 2.4 per-
mere hints, these attacks steadily gained
cent, and GNP at 3 percent. In Khanin's esti-
mate, in 1989 national income shrunkdepth by and ferocity, until by 1989 there was
about 2 percent. little left unattacked. The people were told
Wide awareness of the recession came that they were being governed by the party
only in 1990, when the official statistics
responsible for monstrous atrocities, inflict-
reported drops of 2 percent in GNP and ing
4 misery on its subjects, and leading the
percent in national income. By 1991, the
country to ruin.
The regime's delegitimation was, in the managers by their employees. This blow to
final account, the main reason for the col- managerial authority proved so devastating
lapse of the whole system. The years 1989-91 that it had to be reversed in 1990.
were an experiment in dispensing with the The delegitimation of authority, and
role of ideology in the Soviet system. All the demoralization of those who wielded it,
coercive institutions were still in place, but swiftly led to an erosion of discipline.
with ideology destroyed they were unsure Already in 1988, it was becoming difficult to
what to do, and the people saw no reason to get workers for night or weekend shifts.
obey them. Relations among the suppliers and users,
That part of the ideology that dealt with previously moderated by local Party commit-
the economic system was attacked by tees, became more chaotic. Personnel cuts
Gorbachev himself in his speeches during led to fewer and less coherent commands,
1986-88. He ridiculed command methods, with little else to guide the producers. One of
central planning, and state ownership, and the causes of output decline was the lack of
called for unleashing the creative initiative of inputs, caused in turn by the decimation of
individuals, freed from the dead hand of state the party-state apparatus whose function it
interference. Greed was proposed as an had been to make sure that producer goods
appropriate lever for this task, with payment moved to those who needed them.
closely tied to performance, ceilings on high As authority weakened, more political
earnings removed, and the safety net for the players were dealt into a game originally
weak lowered. Translated into Western meant as one of solitaire. Instead of making
terms, many parts of Gorbachev's speeches
the system more flexible and dynamic, each
could have been uttered by President Reagan
newly organized group tore at its fabric. In
or Prime Minister Thatcher. the late 1980s, the economy was hurt by eth-
Functionaries trying to make the econo- nic hostilities, miners' strikes, and strike
my work found themselves in the crossfire of threats in other sectors, shutdowns of chemi-
these two campaigns: they were assailed for cal and power generating plants by environ-
serving a bad system, and for serving it poor- mental protests, and the assertion of sover-
ly. A characteristic article in Pravda criticized eignty by local governments. The interna-
the first party secretary of the Voronezh tional result of Moscow's weakened authori-
oblast for his handling of the economy. It ty - the East European revolutions - disrupt-
conceded that due to the first secretary's ed trade within the Council for Mutual
efforts, industry and agriculture in the region Economic Assistance (cmea), delivering
worked well and urban dwellers were well another blow to the already reeling system.
supplied with food. Yet the secretary was still
at fault, for good performance was achieved
Why Did He Do It?
by "command methods."
Key economic institutions were emascu-
lated. In 1988, party committees were SOVIETbrought brought down
down COMMUNISM
by an economic col-by an economic was col- not
ordered to stop meddling in their regions'lapse. The whole system was destroyed by the
economy. The staffs of the State planningwords and deeds of the Politburo. Political
commission, and other economic committees authority, and especially the ideology that
and ministries, were cut to keep these organs legitimized it, were the first to crumble, and
from interfering with enterprises. Yet thisthey pulled the economy down with them.
interference and "meddling" by the Party Why would a ruler destroy his empire?
were the only things keeping the economy The vacuous and self-serving memoirs of the
former Politburo members provide no
together. The "radical" reform introduced in
1988 stipulated the election of enterprise answer. Gorbachev's pronouncements at the
42
time and the content of his economic pro- with the regime. The frequency and intensity
gram remain the best clues to his motives. of such expressions increased corresponding-
The need for change was justified by an ly, even though the standard of living, as
alarmist rhetoric with overtones of interna- measured by quantities of goods consumed,
tional rivalry. In one of his first speeches as may have actually increased. Those new
general secretary, Gorbachev asserted that political players in the game, consumers and
"the fate of the country and the place of workers, had now to be reckoned with.
socialism in the world" depended on reach- Investment in high technology sectors was
ing his economic objectives. The main fea- frozen, consumer goods production received
ture of the 1986-90 Five-Year Plan was a a high priority, and military expenditures
started to decline (in 1989, according to CIA,
massive shift of investment to the high-tech-
nology sectors, which in the Soviet economyor in 1990, according to some Soviet
were administratively subordinated to and sources). But then most of Gorbachev's orig-
provided the needs of the military. The
inal policies were reversed or abandoned
objective was to preserve the country's hard- around 1989: acceleration, discipline, sobri-
won "strategic parity" in the face of Reagan's ety campaign, "radical reform" - all were
rearmament, renewed assertiveness (exempli- scrapped. New policies, aimed solely at
fied by placing intermediate-range missiles repairing
in the damage done by the earlier
Europe), and commitment to a technological ones, were introduced.
revolution in military hardware (symbolized Unlike his claimed concern with con-
by SDI and smart munitions). This interpreta- sumer welfare, Gorbachev's original focus on
tion was shared by Soviet intellectuals span- technological innovation was real. This has
ning the whole political spectrum, from given rise to a theory that it was the advent
étatist and imperialist Alexander Prokhanov of radically new technologies that forced his
to the liberal Westernizer Anatoly Strelianyi. hand. Central planning performed well in
While Gorbachev's early pronounce- the era of mass production, of coal and steel,
ments also stressed the need to improve con- it is said, but, in the "information age," it had
sumer welfare, his Five-Year Plan was to change or wither away. When formulated
designed to take resources away from con- in such a broad way, the "technological chal-
sumers and give them to producer goods sec- lenge" explanation is easy to refute.
tors. Some Western observers at the time Technological progress has been a continu-
interpreted this as a policy error, suggesting ous process. The spread of radio, telephone,
that consumers would have been better TV, and the internal combustion engine ear-
served had Gorbachev focused his efforts on lier in this century changed the world as rad-
agriculture. A simpler explanation is that ically as the computer changes it now. The
resource allocation in the Five-Year Plan, Soviet response to technological change was
which Gorbachev personally shaped, reflect- always slow, incomplete, and uneven. In the
ed his true objectives. The rest was just talk. 1980s, the Soviet economy was still strug-
Consumer welfare did acquire a higher gling with the diffusion of the automobile
priority in 1988-89, a change forced on and the telephone. It lagged even in the
Gorbachev by the manifest failure of his ini- adoption of relatively old products and
tial strategy. As already noted, "acceleration," processes, and the microchip would not have
"radical reform," and other policies caused been the first technological challenge unmet
inflation which devastated the consumer by the Soviet economy.
goods market. Only a few years before, this This backwardness did not prevent the
would not have mattered much. But in 1988- USSR from being a superpower by successful-
1989, the weakening of authority sharplyly competing in one narrow sector, the mili-
lowered the cost of expressing dissatisfaction tary. The technology necessary for this suc-
cess was acquired through a combination of structure would have allowed the economy to
stealing, reverse engineering, ingenious grow. While this growth would have been
domestic adaptations and shortcuts, and mas- insufficient to close the gap with developed
sive allocation of resources. Some Western capitalist countries, it would have sufficed to
analysts detected in the Soviet generals a fearcreate a sense of improvement in the coun-
that the Soviet economy would not be able totry. Whatever its limits, this strategy would
have certainly allowed Soviet communism to
pull it off this time. They had not been able
to persuade Brezhnev to change the econo- outlive the inhospitable era of Reagan and
my, but had more luck with Gorbachev. In Thatcher.
this narrower version, the "technological Both strategies - "business as usual" and
challenge" explanation becomes a variationdiscipline tightening - were actually tried
on that advanced above. earlier. There were others which we can only
imagine. One could argue that the best way
to preserve "strategic parity" would have
Andropov 's Kidneys
been to curtail the growth of military
expenditures, thereby putting a brake on
GORBACHEV'S
Reagan'sReagan's
challengechallenge RESPONSE ultimately to
ultimately Western rearmament. Resources spared by
destroyed communism. That response was this move would have boosted the economy.
just one of several viable alternatives, one Inviting Western firms into the oil and gas
that bore the unmistakable imprint of the industries could have been another way of
general secretary's personality. As Gorbachev providing a stimulus.
has recently acknowledged, Andropov would Extreme dependence on the personality
not have gone as far as he, Gorbachev, did.8 of a few top individuals proved to be the
We tend to confer the mantle of inevitability fatal weakness of the Soviet economy.
on accomplished facts, and arguing that what Under even a reasonably good manager,
happened did not have to happen is likely to however, the Soviet economy was a work-
be dismissed as inventing excuses for the los- able system. In the retrospective judgment
ing side. But, the collapse of the Soviet sys- of one writer, "the system was in general
tem was the unintended result of a small much more attuned to the economic reality
number of disastrous decisions by a few indi-
than many of its critics and reformers today
viduals. As Dmitry Shlapentokh hasimagine."9 While decidedly inferior to
capitalist economies, it was compatible with
observed, were it not for Andropov's kidney
disease, communism would still be around.modern industrial society and capable of
In that case, how would the Soviet econ-
technological change, increasing consump-
omy now be performing? As long as the tion, and taking on the rest of the world in
political system remained intact, it wouldmilitary hardware. This is worth repeating
have escaped the rapid disintegration that because
in of yet another variant of the
fact occurred in 1989-91. At the same time,"inevitability" argument. Its unspoken
the economy was incapable of growing at thepremise is that what ended badly must have
4-5 percent annual rate that Gorbachev been going poorly all along. The collapse of
expected. The actual trajectory in betweenthe Soviet economy is thus seen as a proof
these extremes would have depended on the of the worst things ever said about it. It is
course chosen by the general secretary. argued that low estimates of the size of the
Continued relaxation of discipline and the
growth of military expenditures would have^Nezavisimaia gazeta, Nov. 11, 1992.
9V.L. Vaingort, "StroitePnaia industriia pri
led to stagnation or a slow decline. An ener-
getic pursuit of a discipline enforcement pro- perekhode k rynku," Ekonomika i matematich-
gram and a streamlining of the command eskie metody , Vol. 28, issue 2, 1992, p. 283.
44
Soviet economy in the 1950s were correct, sen range of observation may intervene to pre-
and higher ones (like Abram Bergson's) vent that consummation; because. ..observable
wrong, because the economy fell apart in the tendencies, even if allowed to work themselves
1980s.10 But having a GNP that is only X per- out, may be compatible with more than one
cent of that of the United States does not outcome; and because existing tendencies, bat-
cause an economy to collapse; conversely, that ding with resistances, may fail to work them-
it collapsed does not tell us much about theselves out and may eventually 'stick' at some
relative size of the economy at any earlier halfway house.11
period.
Inevitability implies predictability. But if By this standard, Sovietology cannot be
Andropov's kidneys played a crucial role in faulted for not predicting the future. It is the
the collapse of 1989-91, then Sovietologists field's multiple failures to "diagnose observ-
should not be blamed for failing to predict it. able tendencies" - that is, to understand
Social sciences are not equipped to deal with contemporary events - that require criti-
individual behavior. There are also other lim- cism. Getting the present right does not
its to the prediction of social phenomena, guarantee a correct prediction of the future,
well formulated by Joseph Schumpeter: but it at least allows us to discuss possibili-
ties intelligently. □
Any prediction is extrascientific prophecy
that attempts to do more than to diagnose
observable tendencies and to state what results 10See for example, Martin Malia "From Under
would be, if these tendencies should work the Rubble, Where?", Problems of
themselves out according to their logic. In Communism , Jan-April, 1 992 .
itself, this does not amount to prognosis or 11 Socialism , Capitalism , and Democracy (New York:
prediction because factors external to the cho- Harper and Row, 1976), p. 416.

Center For The National Interest The National Interest

Uploaded by

Copyright:

Available Formats

You might also like

Center For The National Interest The National Interest

Uploaded by

Document Information

Original Description:

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Center For The National Interest The National Interest

Uploaded by

Copyright:

Available Formats

Center for the National Interest

The Economic Fallacy

lower than reported.3 with the general acceptance of Bergson's

You might also like