Encyclopedia of Anti-Revisionism On-Line

Irwin Silber

Does disaster loom for Soviet economy?


First Published: Guardian January 24, 1990.
Transcription, Editing and Markup: Paul Saba
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Second in a series

The harsh but inescapable reality of the Soviet Union’s present crisis is that, at bottom, it stems from the failure–no other word will do–of the system’s economic mechanism.

That failure is not always obvious in daily life. One does not encounter armies of unemployed workers or hordes of the homeless on the streets of Moscow or Leningrad. Nor will one find a population on the brink of starvation or in rags. For all its inadequacies, the system has constructed a social safety net that protects the ordinary Soviet citizen from the worst economic calamities to which millions of workers in capitalist countries are subject.

But the generation that could contrast its own condition with that of life under Tsarism is long gone. Similarly, comparisons with the plight of the unemployed and homeless in the U.S. fall on deaf ears to a people who feel, after 70 years of socialism, that they are entitled to more than the guarantee of a subsistence level existence. Soviet workers are tired of being told–and, by and large, do not believe–that they are better off than their Western counterparts.

Their yardstick is not the depressed condition of a Salvadoran peasant, a superexploited South Korean steelworker, an unemployed U.S. Black or a pre-revolutionary Russian laborer. Rather, their expectations are based on what they perceive to be the standard of living of the average employed worker in Western Europe or North America. Using that barometer, Soviet workers have good reason to be dissatisfied.

Their complaints are most visible not at the workplace–which has its problems–but at the marketplace. The monopolistic, producer-oriented command economy is inherently user-unfriendly.

State subsidies keep food prices low. But there is little variety and their quality is, at best, inconsistent. Adding insult to injury, shopping at a government food store is a brutalizing experience. Perennial shortages and the absence of alternatives turn customers into supplicants and sales personnel into unmotivated and frequently abusive bureaucrats.

Housing is relatively inexpensive but in extremely short supply. Almost everyone lives in incredibly cramped quarters. “I don’t want to get married,” says 29-year-old Natasha Golovyrina, a Leningrad Intourist guide who lives with her parents. ’“First of all.” she says, “Where would we live? It takes at least a year or two before you can get a place. And then what kind of apartment would we get? Your housing allotment is about 70 square feet for each occupant. So I know what I’ll wind up with–a tiny apartment practically out in the country. No thanks!”

Golovyrina has additional reasons for being dubious about marriage. Household appliances such as washing machines, dishwashers and vacuum cleaners are expensive and in short supply. (Guest laundry in the Hotel Ukraine, a major downtown Moscow hotel, is washed by hand and hung up to dry.) And given the deeply ingrained sexist division of labor still prevailing in the typical Soviet household, she would be the one saddled with the bulk of household tasks.

Nor does owning an appliance necessarily make things better. Many are of poor quality. (Few would make it if subjected to competition against capitalist-made equivalents.) Replacement parts are hard to come by and weeks–even months–can go by waiting for state-owned service and repair bureaus to respond.

Healthcare in the Soviet Union is a right, but its scope as well as its quality is highly suspect. Life expectancy is 6-8 years below that in the U.S., while infant mortality rates are two-and-a-half times higher. (In some republics where ecologically destructive practices have gone unchecked, the rate is scandalously higher.) Pollution-related illnesses ranging from typhoid fever to anemia are significantly more prevalent than in the West.

A Moscow party member employed at the prestigious Institute of Economics sums up the popular mood succinctly: “We should not have to live this way.”

But the inconveniences and indignities of daily life in the Soviet Union are only the symptoms–and hardly the only ones–of a larger disaster in the making. Evaluated by such criteria as economic growth rates, efficient use of resources, labor productivity, effective distribution and receptiveness to scientific and technological change, the Soviet system does not measure up to the developed capitalist economies of Western Europe, North America and Japan.

Some facts and figures–not from the CIA or the Wall Street Journal–but from Soviet government leaders, economists and academicians:

Gross National Product (GNP): For the last two decades, economic growth in the Soviet Union has barely kept pace with population increases. But even this is deceptive. During the 1970s, GNP growth rates were maintained only because of unusually high world prices for oil, the main Soviet export. With the drop in world oil prices, the stagnation became apparent.

Today, without the production and sale of alcohol, the growth rate would be negative. The situation is not yet improving. Monitoring 178 key types of output for the first eight months of 1989, Soviet economists found that production was down in 62. These included such critical items as coal, gasoline and diesel fuel, oil, fertilizers, chemical fibers, saw timber, cardboard, hosiery and flour.

Labor productivity: In what is arguably the single most telling index of economic efficiency, the Soviet Union lags far behind the capitalist countries. For instance, while the U.S. economy significantly outproduces the Soviets in finished commodities, it does so with a significantly smaller industrial workforce.

The gap in agriculture is even greater where over 25% of the Soviet workforce is employed, compared to 3% in the U.S. But while the U.S. is a net exporter of farm products, the USSR must import grain to feed its population.

Technological innovation and development: While the main capitalist countries have been able to stimulate their economies to unprecedented levels of productivity via new technology, the Soviets have trailed off. “The economy,” says Premier Nikolai Ryhzkov, “was held back by an insurmountable barrier of inertia in all economic systems and by a lack of receptivity to.. . scientific and technical progress.”

Waste of resources: Citing Soviet President Mikhail Gorbachev, the Washington Post reports, “The Soviet Union uses more than twice the amount of metal and 23% more fuel than the U.S. for each $1 billion of GNP. It also consumes 30% more raw materials to produce each ton of food.” But even these figures understate the case. Noting the shortage of refrigeration, storage and transport facilities, Gorbachev says that “30% of what our farms produce is lost to spoilage.”

Although socialist planning was supposed to make such things impossible, the Soviet economy is besieged by problems endemic to capitalism. Inflation is rampant, showing up increasingly in the prices charged in the widespread shadow economy where more and more Soviet citizens are turning to buy the things they can’t find in the state stores. A budget deficit, estimated at $160 billion at the official exchange rate, is largely the consequence of enormous state subsidies to inefficient industries and enterprises.

Unemployment–officially called the problem of “unoccupied people”–is also growing. The situation is particularly severe in Central Asia and the Caucasus. According to a 1986 Central Committee report, 27.6% of the able-bodied population in Azerbaijan was out of work. The figures for Uzbekistan and Armenia were 22.8% and 18%, respectively.

Nor is poverty a stranger to Soviet life. Four to five million Soviet families live below the official poverty level calculated at a monthly income of 51 rubles per person. But most Soviet economists concede that this figure, set in the 1960s, is out of date and that 75 rubles would be more realistic. This would bring more than 43 million people–roughly 16% of the population– below the poverty level, according to figures cited by Leonid Kunelsky, chief of the Economics Department at the State Committee on Labor and Social Issues.

So what went wrong?

Gorbachev and his closest circle of advisers have come to the conclusion that the mechanism that has organized the country’s economic life since the early 1930s–what they call the administrative-command system–is fundamentally unsound. That system, established by Stalin, is essentially the conception of socialism that has organized the economic activity not only of the Soviet Union but of all the countries that have made up the “socialist bloc.”

The starting premise for this conception was that the market, commodity-money relations, Marx’s Law of Value (the value of any commodity is determined by the amount of socially necessary labor time it takes to produce it) and property forms other than state ownership were all expressions of the capitalist mode of production and had to be eliminated in order for socialism to fulfill its destiny.

In their place, Stalin established a highly centralized structure with near-total authority to manage every aspect of the Soviet economy–from setting goals and allocating resources for the production of millions of products, to fixing prices, wages and working conditions.

The justification for this mechanism was that, in addition to eliminating private profit and exploitation, it was the only way to insure a scientifically planned economy with effective allocation and management of resources.

In fact, say Gorbachev’s radical reformers, this model of socialism has proven unworkable and unsustainable. “The administrative-command system of economic management,” says Leonid Abalkin, Gorbachev’s top economic adviser, “inevitably spawns bureaucratism and irresponsibility and leads to a squandering of material resources and an undermining of labor and economic initiative.”

Professor A.D. Smirnov, a specialist in economic methods of management, says that the system daily violates the Law of Value–thereby encouraging both waste and inflation–because it has “no mechanisms for bringing costs to the socially necessary level. The producer’s actual costs are the basis for prices.”

Many critics of the old system acknowledge that, in economic terms, it had some initial successes. Its orientation toward rapid industrialization, quantitative increases in production and the satisfaction of a relatively limited range of human needs helped transform once-backward Russia into a world-class power.

Economist Yuri Olsevich, advancing a don’t-throw-out-the-baby-with-the-bath-water argument, goes further. Stalin also established the rudiments of “early socialism,” he says, “although by the early 1960s under the new domestic and international conditions, initial socialism had exhausted its historical possibilities.”

Others argue that such a view is deceptive and only serves to obscure the long-term harm done both the Soviet Union and the cause of socialism by Stalinism. Victor Kisselov, a party member and section head in the Institute of Economics of the World Socialist System, believes that the problem rests with “the radical communist socialism of Marx and Lenin.” That brand of socialism, he says, is laced with utopianism and a built-in tendency toward dictatorial rule.

“Lenin’s initial ideas about socialism did not include economic methods for regulating the economy,” says Kisselov. “This was the period of war communism. Then during the NEP (New Economic Policy) period, Lenin became more practical. Stalin went back to and adopted Lenin’s theory of war communism. So Stalin had some right to call himself a Leninist. . .You can’t understand Stalin simply as an intrinsic villain. He had a criminal mind, but still he was a communist.

“Marx,” he continued, “described people like this as exponents of despotic communism who proceed from the abstract rejection of the world of culture and civilization. Stalin was one of those who, as even reached it.’”

Abalkin believes that the administrative-command model violates the first principle of scientific socialism–that progressive social relations depend on the level of development of society’s productive forces. The old system, he says, “proceeded from the theoretical premise that social justice, expressed in the principles of social ownership, elimination of the exploitation of man by man and distribution according to one’s labor would, in and of itself, insure economic effectiveness. Experience has shown this approach to be unrealistic. . . .

In fact, the more effectively a society economy works, the more just it can permit itself to be.”

The assumption underlying perestroika, Abalkin goes on, “is not to improve the existing mechanism of economic management or to replace individual outdated parts of it. One system, which is an internally consistent whole, is to be dismantled and replaced by another one, also a consistent whole, but for this very reason incompatible with the first.”

The essence of the new system is concentrated in three basic reforms.

First is the switch to a system of economic pluralism. State ownership will continue–especially in those areas with the most decisive impact on the system as whole. But other forms–cooperatives leasing and even private ownership–will be actively encouraged.

Second is the changeover in state owned enterprises to a system of self-financing and self-management, designed to promote economic efficiency and technological innovation.

Third is the establishment of a market system for the economy as a whole. This is visualized as a regulated “socialist” marks with the state able to enforce standards designed to protect workers and consumers. In this system the state would even subsidize a limited number of commodities and service in order to make sure that they remain within reach of the average worker.

The transition to this system will not be easy. There are bound to be layoffs, price increases and other dislocations. Even while scrapping the old administrative system, the state will have to provide new social protections during the change. Thus the 1990-91 economic plan calls for a sharp increase in the production and distribution of consumer goods in order to insure popular support for the reforms.

Meanwhile, emboldened by the continuing difficulties, the anti-perestroika forces–concentrated in the ministries and much of the party apparatus–are marshaling the ranks to resist.

Nevertheless, something resembling a “mixed economy” will most likely emerge from it all. Whatever its virtues and draw backs, no other course seems possible. The tension in this process will undoubtedly flow out of a struggle over the nature of the mix and what Abalkin calls “the objective contradiction between economic effectiveness and social justice.”

To be continued