But if this is the case—if Russia was such an economic basket case—ask Stalin’s defenders: How was it that the country was able to produce all the materiel necessary to win the Second World War? (For, if we are honest, it was the USSR that beat the Nazis, with the UK and US only playing supporting roles.) How was it possible, after the war, for Russia to put the first satellite, and the first human, in space? And how was it possible for Moscow to deliver free healthcare to all its citizens and transform a population of illiterate peasants into one with universal literacy, extensive postsecondary education and some of greatest achievements in science and technology outside of the United States?
First we must remind ourselves that all these successes were only experienced by those who survived the purges and the Great Famine. An improved average standard of living means little if you’re not living. Secondly, if we can concede that pharaohs can build pyramids and Sphynxes, and capitalists railroads and rocket ships, we can of course concede that despots can build fleets of tanks and hydroelectric dams. The question is, however, whether this is the most efficient, maximally egalitarian method of doing so—and whether this is sustainable.
Such was the chaotic, demoralized situation in which the USSR found itself on the eve of World War II. It seems remarkable that the country was able to win the war. Yet for all the disorganization and economic decline at the end of the decade, the centralization of all resource planning over the previous decade undoubtedly helped. As the war progressed, decisions over investment and allocation of resources would likewise be increasingly centralized by the United States, the UK and Nazi Germany. It appears that total war has little patience for the lethargy of private market actors, regardless of whether socialists or capitalists are in the driver’s seat of the state. Russia, for its part, stepped up the tempo of planning, producing quarterly and then monthly plans, with much more detail than before the war.
The initial postwar period, the final decade of Stalin’s rule, was largely consumed with recovery and reconstruction of an economy wrecked by war. Rather than a relaxation of totalitarian governance now that the war was over, it was a period of further constriction, with even the pretense of democratic governance abandoned: party congresses were not held, and Central Committee meetings were infrequent. Planning became ever more a prisoner of Stalin’s caprice, with many important questions decided by him alone without discussion with workers, economists or specialists. The head of Gosplan was fired in 1949 and ultimately shot.
“We have knowledge of socialism, but as for knowledge of organization on a scale of millions, knowledge of the organization and distribution—that we have not. This the old Bolshevik leaders did not teach us,” Lenin wrote in 1923 as the scale of the challenge began to reveal itself. “Nothing has been written about this yet in Bolshevik textbooks, and there is nothing in Menshevik textbooks either.” Indeed, we might even say that the deterioration of the situation in the early Soviet Union was at least in part due to these gaps in classical Marxism upon which the architects of the new system depended.
Far from economic planning driving the authoritarianism of the Stalin period, we find that the period was riddled with arbitrariness as the Stalinist leadership jumped from whim to whim. This could in no way be called a democratization of economic decision making. Given the suspicion of experts, it could not even be described as technocratic. All levels of society, but especially those in any managerial or predictive role, lived in constant fear of the secret police, the gulag and the firing squad, petrified of submitting the wrong results or the wrong data to higher-ups, or even of taking responsibility for decisions. In such circumstances, it is manifest that such authoritarianism will undermine the quality of information needed for effective planning.
So when we ask why planning on the scale of the economy of the Soviet Union would succeed in the form of a Walmart but fail in the hands of Stalin, the answer lies within the question itself.
Far from market-less planning being synonymous with Bolshevism, as many ahistorical accounts on the right would have it, the early Soviets did not set out from the gate knowing very much at all about the sort of economy they wanted to build. It was a mess that would only begin to be cleaned up during a brief liberalizing spring under postwar leader Nikita Khruschev—an epoch that, as we will see, gave rise to innovations in planning and mathematics that would lead, ironically, to systems that have been almost universally adopted by corporations, and ultimately to the algorithms that “run the world.”
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HARDLY AUTOMATED
SPACE COMMUNISM
If indeed Soviet planning was so poor in its first decades as we have suggested, we can barely call the phenomenon planning. How, then, did the country rise to become a superpower, the second-largest economy in the world after the United States? How did the USSR pass from a condition of what Marx called “rural idiocy” to building a rough and ready welfare state alongside the advanced scientific society of Sputnik and Yuri Gagarin?
These contradictions are resolved if we step away from the notion that in order to find something of utility in the Soviet Union, we have to defend the system in toto. The largest Western firms could never be accused of Communist sympathies; quite the contrary. Yet these capitalist magpies were happy to adopt linear programming methods that were devised in part by Soviet economists to internally coordinate their own efforts. Today, we can do much the same: see what lessons we can glean and figure out what went wrong.
3, 2, 1 … Takeoff
The premiership of Nikita Krushchev from 1953 to 1964 was characterized by large releases of political prisoners, an ousting of Stalinists, a sharp reduction in police powers, relaxation of censorship, opening up of foreign contact, cultural transformation, a frank assessment of statistical distortions, a relative decentralization of decision making, and above all, remarkable economic growth.
It would be incorrect to describe the Soviet Union as no longer an authoritarian state, and it was only months after Kruschchev’s “secret speech” to the Twentieth Congress of the Communist Party of the Soviet Union—denouncing Stalin and his cult of personality—that Soviet tanks invaded Hungary. They were sent to suppress a workers’ uprising that been inspired by similar events in Poland: a rebellion, perhaps even revolution, not unlike what had occurred in October 1917 in Russia, complete with a collapse of the government, an emergence of workers’ councils and the formation by thousands of popular militias that battled both the state security police and the invading USSR. One can argue that Khrushchev was pushed into such a repressive maneuver precisely to preserve his domestic “spring” against Stalinist hard-liners who would have otherwise toppled him (and who ultimately did exactly that). But we should recognize that, for all his differences, Khrushchev was both product and architect of the same ruthless, authoritarian Stalinist system that came before.
Nevertheless, for around a decade, an undeniable liberalization occurred. What became known as the “Khrushchev Thaw” gave republics power over their own economies. Conferences of specialists were held, with a view to learning from foreign best practices, while directors, local officials and trade union leaders were brought into consultative discussions for draft five-year plans. Crucially, Khrushchev oversaw a rebalancing of the flow of value between town and country through a write-off of debts, reductions in quotas, an increase in investment in farm machinery, electrification, fertilizer, and many other measures. The kolkhozes would now in essence tell the center what they would produce, instead of the other way round, and it was the job of Gosplan to reconcile these “draft plans from below” with each other and with economy-wide objectives.
Growth in the 1950s was rapid. A massive program of house building coincided with a mass migration of peasants to the cities as technological transformation in agriculture radically reduced labor requirements. Advances in education and training were among the greatest achievements of the era, along with impressive extensions of healthcare and the status of women, with many women b
ecoming engineers, technicians and judges a goodly time before such breakthroughs were achieved elsewhere.
This was the golden age of the Soviet Union. It saw the launch of Sputnik in 1957; the first human to travel into outer space, Yuri Gagarin, in 1961; the first woman in space, Valentina Tereshkova, in 1963 (an achievement the United States would not match until 1983, by then the third woman in space); and, according to analyses made by historians after the end of the Cold War with open access to Soviet archives, economic growth rates that were surpassed only by Japan.
Today when we think of the USSR, it is the terror of the gulag in the 1930s and the grey-beige tedium of empty supermarket shelves in the 1980s that come to mind. But as Francis Spufford reminds in his 2010 novel-cum-history of this period, Red Plenty, where the protagonist appears not to be any one individual character but the very idea of economic planning, this was a time—at the height of the European and American postwar boom—when Soviet economic success as well as technological and scientific prowess had Western newspaper editorial writers, think-tank boffins and presidential advisors ranging in opinion from being concerned to being convinced that sooner or later, they would be overtaken by the Communist superpower.
As Spufford writes in a précis of the key ideas in his novel appearing in the Guardian,
It was not the revolutionary country people were thinking of, all red flags and fiery speechmaking, pictured through the iconography of Eisenstein movies; not the Stalinesque Soviet Union of mass mobilization and mass terror and austere totalitarian fervor. This was, all of a sudden, a frowning but managerial kind of a place, a civil and technological kind of a place, all labs and skyscrapers, which was doing the same kind of things as the west but threatened—while the moment lasted—to be doing them better … The era when the place seemed to be in a state of confident, challenging, expansive maturity has fallen off our mental carousel.
Khrushchev was so confident in his country’s growing prosperity that he predicted the USSR would overtake the US economy by 1970, reaching aspects of the fully equal, post-scarcity society of luxurious abundance and ever-shrinking requirements of labor promised by Marx—from each according to their ability, to each according to their need—by 1980.
But we all know that nothing remotely like this occurred. So what stalled the Soviet economy?
The economist Alec Nove, whom we have met before in this book, argues that planning inevitably leads to authoritarianism. Spufford, being more sympathetic than Nove to this period of Soviet history, evinces more nuance, but his conclusion, like that of Nove, and many other authors, is still that it was the consequence of the attempt to coordinate an economy without the use of the price signal in the marketplace.
A centerpiece episode in Spufford’s book describes the wrecking of a machine used in the production of viscose, a semisynthetic fiber, and the difficulties of obtaining a replacement. The unexpected development requires a revision of the projections and schedule of the factory that produces the viscose machines, and this in turn forces an alteration of the projections and schedule of all the factories that produce the parts that make the machine, and in turn the raw materials that make those parts. Waves of impact ripple out across the entire economy in what one reviewer called a “nightmare combinatorial explosion.” And the episode is only there to illustrate what occurs, moment to moment, as a result of what happens to every single one of billions of commodities throughout the economy. Everything affects everything. How is it possible to gather all of these variables? And then, even if it were somehow possible to track all of this, using thousands of the most modern supercomputers with our early twenty-first-century processing speeds, how could we calculate all of that, and constantly reassess it on a daily or even moment to moment basis?
For all of the triumph of Sputnik and a surge in consumer durables, there remained repeated, critical shortfalls, and outputs regularly failed to match user requirements. As the economy grew, the requirements for information only increased, as did the complexity of plans, along with the need for individuals to draft the plans and continually reconcile them with results. Worse still, the priority under Stalin had been heavy industry, with its limited range of products. For the most part, the planning system had been effective with respect to the crude, large-scale decisions needed by basic industries such as mining, steel production, heavy manufacturing and electricity generation. But once consumer items became a focus, the number of commodities naturally exploded, along with the complexity of tracking, assessing and reconciling all the factors of production, and with this the probability of error.
In The Economics of Feasible Socialism, Nove assessed that there were some 12 million identifiably different products, from brown shoes to ball bearings to different patterns of cloth, produced by almost 50,000 different factories, not counting the various farms, transportation structures, and wholesale and retail outlets. The interdependencies of all these supply chains must be optimized according to a range of variables, incorporating such factors as repair, replacement, technological innovation, changing taste, payments to the state budget, cost reduction, productivity, and of course, time. He repeats a Soviet joke from the time: “Mathematicians have calculated that in order to draft an accurate and fully integrated plan for material supply just for the Ukraine for one year requires the labor of the entire world’s population for 10 million years.”
Confronted with such recurring problems, the leadership engaged in repeated experiments in reorganization of planning and administrative institutions, but they met with little success. Such constant reforms themselves began to disrupt planning. The Khrushchev Thaw, however, also permitted a sudden freedom of discussion and critique, and thus a revival of economic debate. Many planners and economists were aware of the problem: fundamentally insufficient, poor-quality data, and the inability to process what they had.
There emerged two main responses. The first sought to increase the role of the profit motive and freedom of different enterprises to contract with each other; in other words, a restoration, to greater or lesser degree, of market relations, even if firms would still be owned by the state.
The second is personified by mathematician Leonid Kantorovich, the sole Soviet citizen to ever win the Swedish National Bank’s Prize in Economic Sciences in Memory of Alfred Nobel. Along with his comrades at Moscow’s Mathematical Economics Institute, Kantorovich believed a solution would be found by using newly emerging electronic computers to improve optimization. But even here, there was no way that they could imagine computers able to handle the vast information flows of millions of products, and so this had to be married to some flexibility at the firm level. In an atmosphere of greater freedom and debate, the challenge attracted some of the best mathematical minds the country would ever produce.
But to consider their responses to the crisis, and to assess whether Nove and others were correct to conclude that planning on an economy-wide scale is simply impossible—that is, to answer the question of whether there could have been any other conclusion than the collapse of the Soviet Union by the end of the 1980s—we are going to have to jump across the Atlantic to the United States of the 1940s, as well as to rewind the clock and return to the some of the arguments made in the socialist calculation debate.
What Goes In, Must Come Out
The term “input-output analysis,” marking out one of the most important branches of economics, was conceived during the Second World War to describe the work of Russian-born Harvard economist Wassily Leontief and the Bureau of Labor Statistics, work for which Leontief would later earn one of those (sort of) Nobel prizes for economics. An input-output table offers a simplified representation of the flows of inputs and outputs among industries, and ultimately consumers. It is, in effect, a spreadsheet: each horizontal row represents how a particular industry’s output is used as an input by another industry and consumers, while each vertical column represents all the inputs used by any one industry. The table demonstrates quantitatively the dependenc
e of each industry on all other industries. An increase in Lego output requires an increase in input of plastic, and hence an increase in plastic production.
Such tables are used by companies, and departments within companies, to plan production to meet output targets, and to analyze what the effects on outputs would be with changes to various inputs (and vice versa). The table allows the calculation of the quantity of a particular commodity A that is required to produce one unit of commodity B. Leontief described his work this way: “When you make bread, you need eggs, flour, and milk. And if you want more bread, you must use more eggs. There are cooking recipes for all the industries in the economy.”
Although he published the first input-output table in a 1936 paper, Leontief himself said that more rudimentary versions of such tables had been produced in the nineteenth century by economist Léon Walras, or even in the eighteenth century by François Quesnay (his Tableau économique)—and, indeed, by Marx. One of Leontief’s major breakthroughs was to convert Walras’s equations into linear algebra. This advance is what drove uptake of input-output analysis after the Second World War in the United States and, subsequently, internationally.
Akin to the sometimes-silly battle between Newton and Leibniz over who had been the one to invent calculus (answer: both), throughout the Cold War and after, a great deal of effort was expended on assessing the origins of input-output analysis to decide whether it was an American or Soviet innovation (and even, within the USSR, whether it was a Bolshevik or a Menshevik innovation!). What is interesting though—and recent post–Cold War scholarship suggests this is undeniable—is that the early efforts of the Soviet Union to “grope in the dark,” to use Mises’s term, left an impression on a younger Leontief.
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