Economy of the Soviet Union
The economy of the Soviet Union was based on state ownership of the means of production, collective farming, and industrial manufacturing. An administrative-command system managed a distinctive form of central planning. The Soviet economy was second only to the United States and was characterized by state control of investment, prices, a dependence on natural resources, lack of consumer goods, little foreign trade, public ownership of industrial assets, macroeconomic stability, low unemployment and high job security.
Beginning in 1930, the course of the economy of the Soviet Union was guided by a series of five-year plans. By the 1950s, the Soviet Union had rapidly evolved from a mainly agrarian society into a major industrial power.
Its transformative capacity meant communism consistently appealed to the intellectuals of developing countries in Asia. In fact, Soviet economic authors like Lev Gatovsky frequently used their economic analysis of this period to praise the effectiveness of the October Revolution. The impressive growth rates during the first three five-year plans are particularly notable given that this period is nearly congruent with the Great Depression. During this period, the Soviet Union saw rapid industrial growth while other regions were suffering from crisis.
The White House National Security Council of the United States described the continuing growth as a "proven ability to carry backward countries speedily through the crisis of modernization and industrialization", but the impoverished base upon which the five-year plans sought to build meant that at the commencement of Operation Barbarossa on 22 June 1941 the country was still poor.
Even so, the Soviet Union had the second largest economy in the world from the end of World War II until the mid-1980s. A major strength of the Soviet economy was its enormous supply of oil and gas, which became much more valuable as exports after the world price of oil skyrocketed in the 1970s. As Daniel Yergin notes, the Soviet economy in its final decades was "heavily dependent on vast natural resources–oil and gas in particular". World oil prices collapsed in 1986, putting heavy pressure on the economy.
After Mikhail Gorbachev became the General Secretary of the Communist Party of the Soviet Union and came to power in March 1985, he began a process of economic liberalization by dismantling the command economy and moving towards a mixed economy modeled after Lenin's New Economic Policy.
The Chernobyl disaster beginning on 26 April 1986 was the costliest disaster in human history.
At its dissolution at the end of 1991, the Soviet Union bequeathed its successor state, the Russian Federation, with a growing pile of $66 billion in external debt and barely a few billion dollars in net gold and foreign exchange reserves.
The complex demands of the modern economy somewhat constrained the central planners. Data fiddling became common practice among the bureaucracy by reporting fulfilled targets and quotas, thus entrenching the crisis. From the Stalin-era to the early Brezhnev-era, the Soviet economy grew slower than Japan and faster than the United States. GDP levels in 1950 were 510 in the Soviet Union, 161 in Japan and 1,456 in the United States. By 1965, the corresponding values were 1,011, 587 and 2,607. The Soviet Union maintained itself as the world's second largest economy in both nominal and purchasing power parity values throughout the Cold War, until 1990 when Japan's economy exceeded $3 trillion in nominal value.
The Soviet Union's relatively medium consumer sector accounted for just 60% of the country's GDP in 1990 while the industrial and agricultural sectors contributed 22% and 20% respectively in 1991. Agriculture was the predominant occupation in the Soviet Union before the massive industrialization under Soviet general secretary Joseph Stalin. The service sector was of low importance in the Soviet Union, with the majority of the labor force employed in the industrial sector. The labor force totaled 152.3 million people. Though its GDP crossed $1 trillion in the 1970s and $2 trillion in the 1980s, the effects of central planning were progressively distorted due to the growth of the black market informal second economy in the Soviet Union.
Planning
Based on a system of state ownership, the Soviet economy was managed through Gosplan, Gosbank and the Gossnab. Beginning in 1928, the economy was directed by a series of five-year plans, with a brief attempt at seven-year planning. For every enterprise, planning ministries defined the mix of economic inputs, a schedule for completion, all wholesale prices and almost all retail prices. The planning process was based around material balances—balancing economic inputs with planned output targets for the planning period. From 1930 until the late 1950s, the range of mathematics used to assist economic decision-making was, for ideological reasons, extremely restricted.On the whole, the plans were overoptimistic and plagued by falsified reporting.
After 1928, the industry was long concentrated on the production of capital goods through metallurgy, machine manufacture, and chemical industry. In Soviet terminology, goods were known as capital. This emphasis was based on the perceived necessity for very fast industrialization and modernization of the Soviet Union. After the death of Joseph Stalin in 1953, consumer goods received somewhat more emphasis due to the efforts of Georgy Malenkov. However, when Khrushchev consolidated his power by sacking Malenkov, one of the accusations against him was that he permitted "theoretically incorrect and politically harmful opposition to the rate of development of heavy industry in favor of the rate of development of light and food industry".
Since 1955, the priorities were again given to capital goods, which was expressed in the decisions of the 20th Congress of the Communist Party of the Soviet Union in 1956.
In 1959, economist Naum Jasny wrote that while many of the official statistics were correctly reported:
Most information in the Soviet economy flowed from the top down. There were several mechanisms in place for producers and consumers to provide input and information that would help in the drafting of economic plans, but the political climate was such that few people ever provided negative input or criticism of the plan and thus Soviet planners had very little reliable feedback that they could use to determine the success of their plans. This meant that economic planning was often done based on faulty or outdated information, particularly in sectors with large numbers of consumers. As a result, some goods tended to be underproduced and led to shortages while other goods were overproduced and accumulated in storage. Low-level managers often did not report such problems to their superiors, relying instead on each other for support. Some factories developed a system of barter and either exchanged or shared raw materials and parts without the knowledge of the authorities and outside the parameters of the economic plan.
Heavy industry was always the focus of the Soviet economy even in its later years. The fact that it received special attention from the planners, combined with the fact that industrial production was relatively easy to plan even without minute feedback, led to significant growth in that sector. The Soviet Union became one of the leading industrial nations of the world. Industrial production was disproportionately high in the Soviet Union compared to Western economies. By the 60s calorie consumption per person in the Soviet Union was at levels similar to the United States. However, the production of consumer goods was disproportionately low. Economic planners made little effort to determine the wishes of household consumers, resulting in severe shortages of many consumer goods. Whenever these consumer goods would become available on the market, consumers routinely had to stand in long lines to buy them. A black market developed for goods such as cigarettes that were particularly sought after, but it constantly underproduced. People were developing unique social "networks of favors" between people having access to sought after goods.
Drafting the five-year plans
Under Joseph Stalin's close supervision, a complex system of planning arrangements had developed since the introduction of the first five-year plan in 1928. Preceding this, Leon Trotsky had delivered a joint report to the April Plenum of the Central Committee in 1926 which proposed a program for national industrialisation and the replacement of annual plans with five-year plans. His proposals were rejected by the Central Committee majority which was controlled by the troika and derided by Stalin at the time. Stalin's version of the five-year plan was implemented in 1928 and took effect until 1932. According to historian Sheila Fitzpatrick, the scholarly consensus was that Stalin appropriated the position of the Left Opposition on such matters as industrialisation and collectivisation. Comparatively, Trotsky believed that planning and N.E.P should develop within a mixed framework until the socialist sector gradually superseded the private industry.Until the late 1980s and early 1990s, when economic reforms backed by Soviet leader Mikhail Gorbachev introduced significant changes in the traditional system, the allocation of resources was directed by a planning apparatus rather than through the interplay of market forces.
Time frame
From the Stalin era through the late 1980s, the five-year plan integrated short-range planning into a longer time frame. It delineated the chief thrust of the country's economic development and specified the way the economy could meet the desired goals of the Communist Party of the Soviet Union. Although the five-year plan was enacted into law, it contained a series of guidelines rather than a set of direct orders.Periods covered by the five-year plans coincided with those covered by the gatherings of the CPSU Party Congress. At each CPSU Congress, the party leadership presented the targets for the next five-year plan, therefore each plan had the approval of the most authoritative body of the country's leading political institution.