Soviet Union Economy

Background

The Russian Empire, ruled by the tsars, was a largely agrarian society with 70-80% of the population involved in farming. However, there were pockets of industrial production throughout late imperial Russia, including:

• the construction of railways linking Siberia (the Trans-Siberian Railroad),
• the expansion of heavy industries, including coal and iron production,
• manufacturing in cities.

After the Revolution of 1917, the Soviet economic system sought to break with the Tsarist past. the revolutionaries, led by Vladimir Lenin (1870-1924), used the works of Karl Marx (1818-1883) and adapted his theories to their country's conditions.

Karl Marx

• Karl Marx was a critical Jewish-German intellectual who collaborated with Friedrich Engels (1820-1895). The two thinkers analyzed the nature of capitalism and the relationship between the classes within this economic system. Marx and Engels made several predictions about the general development of history. Marx's Capital and The Communist Manifesto inspired several left-wing political movements and parties: from the radical Left in Russia, the Bolsheviks, to the moderate Left in Germany, the Social Democrats.

Marx believed that the capitalist economic system led to the exploitation of the working class by capital (big business) because capital owns the means of production. His analysis of the relationship between big business, the bourgeoisie (middle class), and the working class is one of the key aspects of his thought.

Fig. 1 - Gustav Klucis (Klutsis), Raise the Flag of Marx, Engels, Lenin, and Stalin Higher, Soviet poster, 1936. Wikipedia Commons (public domain).

Marx also predicted the emergence of a classless society—after a social revolution—under Communism.

• Communism is Karl Marx theorized economic, political, and social system. He envisioned this system as one of egalitarianism, in which all citizens collectively own the means of production and property.

The most significant problem with Marx's forecast was that he was vague about how this revolution would take place. Contrary to his vision:

• revolutions occurred in agrarian, not industrial, societies like Russia and China;
• instead of withering away, the post-revolutionary state grew more substantial and more centralized.

The Russian Revolution and War Communism

The Russian Revolution (1917) was successful because of several factors, including:

• the broad discontent with the First World War (1914-1918);
• poor labor conditions in cities;
• the Marxist-based ideology of the Bolsheviks (the radical wing of the Social-Democratic Workers' Party).

The Bolsheviks' simple message of bread, peace, and land resonated with the Russian people. The Revolution spilled over into a Civil War (1917-1921).

Soviet Union Economy: Summary

The Soviet Union had different economic types during its existence.

Soviet Union: Economy Type

The New Economic Policy

The New Economic Policy (1921-1928), NEP, was a mix of socialism and capitalism. Vladimir Lenin introduced this policy after several years of wartime hardship as a compromise.

Fig. 2 - An ad for the state trust Mosselprom featuring confectionary products, the mid-1920s, USSR. Source: Wikipedia Commons (public domain).

The new Soviet state nationalized key industries but allowed for private ownership in other areas of the economy, including agriculture, the service industry, and retail. The Soviet government sought to attract foreign capital through concessions—enterprises that used foreign investment. The government also carried out a monetary reform to make the Russian ruble a convertible currency.

Soviet Union: Economy under Stalin

The Five-Year Plans were a series of Soviet economic plans starting in 1928 by the next leader, Joseph Stalin. These plans were based on output quotas. The workers were even encouraged to complete the plans in four years. The authorities also encouraged overachievement on a personal level.

• The goal of the first two plans (1928-1932, 1933-1937) was to industrialize the largely agrarian country and to bring agriculture under state control. Beyond the need for heavy industries, from the Soviet perspective, the country was surrounded by hostile powers. The threat of war was imminent. Therefore, military production was also necessary. For this reason, the Third Five-Year Plan built up military production (1938-1942) in light of the growing threat of Nazi Germany in Europe. At the same time, foreign specialists and companies participated in Soviet industrialization, for example, General Electric and Ford Motors.

Fig. 3 - First-Five-Year Plan poster advocating its completion in four years, the late 1920s, Ya. Guminer, USSR. Source: Wikipedia (public domain).

Five-Year Plans:

• First Five-Year Plan (1928—1932)
• Second Five-Year Plan (1933—1937)
• Third Five-Year Plan (1938—1942)
• Fourth Five-Year Plan (1946—1950)
• Fifth Five-Year Plan (1951—1955)
• Sixth Five-Year Plan (1956—1960)
• Seventh Five-Year Plan (a seven-year plan) (1959—1965)
• Eighth Five-Year Plan (1966—1970)
• Ninth Five-Year Plan (1971—1975)
• Tenth Five-Year Plan (1976—1980)
• Eleventh Five-Year Plan (1981—1985)
• Twelfth Five-Year Plan (1986—1990)

Collectivization

Between 1928 and 1937, the Soviet government also carried out a mass collectivization initiative to organize individual private farms into large, collective farms operated by the state. The purpose of collectivization was to enhance productivity through mechanized production and to divert resources into the heavy industrial sector. Some farmers, particularly the well-off ones, opposed collectivization. As a result, the state was forced to slow down this process to avoid civil unrest.

Soviet Union Economy: World War II

When Nazi Germany attacked the Soviet Union in June 1941, the latter already had heavy industries, natural reserves, and human power at its disposal. Historians argue that the USSR would not have been able to withstand the Nazi onslaught had it not been for its rapid industrialization.

In 1942, the USSR reoriented its economy toward wartime production. Overall, during the Second World War, the Soviet Union bore the brunt of fighting Nazi Germany on the Eastern Front and was responsible for approximately 80% of Nazi German losses. The country, however, was devastated, with entire cities, such as Stalingrad, destroyed and 27 million dead.

Soviet Union Economy: Cold War

After 1945, because of the Cold War, the Soviet Union was excluded from the Marshall Plan (1948-1952)

—a U.S.-led campaign to help postwar Western European recovery that provided loans and other incentives.

The Soviet Union launched its counterpart, the Molotov Plan, which sought economic recovery in Eastern Europe. The USSR also converted its economy to peacetime conditions. The government persisted with the Five-Year plans focused on heavy industry and military output in light of the Cold War.

The USSR successfully developed science, technology, and space research and exploration:

• The country launched the first artificial satellite, Sputnik, in October 1957.
• The first human in space, cosmonaut Yuri Gagarin, orbited the earth in April 1961.

Fig. 4 - Soviet cosmonaut Yuri Gagarin, the first human in space. Source: Mil.ru, Wikipedia Commons (Creative Commons Attribution 4.0 International license).

Collapse of the Soviet Union: Economy

In the 1970s, the Soviet Union continued developing heavy industry and building new factories in several cities, pursuing nuclear power, electronics, and the agro-industrial sectors of its economy. The country also consolidated its energy system and focused on oil and gas production. The economic system was still centrally controlled. As a result, certain aspects of effectively managing the economy of the largest country in the world gradually became outdated. Falling oil prices also negatively affected the country in its late period.

In the mid-1980s, the Soviet government attempted to reform its economic and political system in Perestroika's initiative through partial decentralization and improved resource allocation. However, in 1991, the Soviet Union collapsed for several complex economic and political reasons, ranging from the poor leadership of Mikhail Gorbachev to regional nationalism.