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So, over on SB.com I got in a debate over how much of the collapse of the USSR was because of the inherent flaws of communism and how much was other factors.

I find the question highly intriguing but I don't actually know all that much about how the USSR and other communist economies worked and how they performed.

Does anybody have any good books or other materials relevant to the subject to recommend me?

Thanks.

You know, it's kinda for reasons like this that there's a book recommendation thread at the top of this forum...

For the Soviet Union, Stephen Kotkin's Armageddon Averted is probably the best short overview of the collapse. I know Stas Bush would recommend his other works, particularly Magnetic Mountain for the economics of the country.

TC Pilot wrote:You know, it's kinda for reasons like this that there's a book recommendation thread at the top of this forum...

Oops, sorry, I didn't notice it.

Brief summary: constant deficits and loan fraud by firms lead to an overexpansion of the monetary base combined with price controls resulted in product shortages (too many dollars chasing too few goods). Cause of deficits and loan fraud? Excessive labor demand caused by inefficient utilization of labor (inefficient firms were subsidized) and production quotas, which overvalued wages requiring firms to borrow money to hire labor. It got worse due to demographics (shrinking labor pool).

As an example, the number of rubles you could spend was rationed before the breakup.


It's complex, but this is the gist of it.

What, spending between 15 and 20% GDP on the military (and thus, structural problems with the economy which had too much heavy and too little light industry) had nothing to do with it?

PeZook wrote:What, spending between 15 and 20% GDP on the military (and thus, structural problems with the economy which had too much heavy and too little light industry) had nothing to do with it?

Define heavy and light industry? Is a silicon chip fabrication plant heavy or light? This is like saying the current US economic crisis was caused by excessive consumer spending. The percentage amount of spending does not matter, it is how it is financed. Printing money is the worst method.

The Soviet government spent more then it taxed, Soviet businesses spent more then they were allowed to on wages, and prices were kept at a ceiling.


http://www.nytimes.com/1988/10/28/world ... lamed.html

Economic problems only set the stage anyway, otherwise the post-soviet regime wouldn't have survived the catastrophic disintegration of the economy. The Soviet Union suffered what amounted to a political demoralization following glasnost that left it largely incapable of responding to nationalist aspirations. Even then, the Union might have still emerged largely intact (minus the Baltic states, perhaps a few Caucasian states, and maybe Ukraine) without the dismal failure of the '91 coup, which links back to the political demoralization. The GKChP simply wouldn't (or couldn't) pull another Tiananmen when faced with civil opposition to their authority.

TC Pilot wrote:Economic problems only set the stage anyway, otherwise the post-soviet regime wouldn't have survived the catastrophic disintegration of the economy. The Soviet Union suffered what amounted to a political demoralization following glasnost that left it largely incapable of responding to nationalist aspirations. Even then, the Union might have still emerged largely intact (minus the Baltic states, perhaps a few Caucasian states, and maybe Ukraine) without the dismal failure of the '91 coup, which links back to the political demoralization. The GKChP simply wouldn't (or couldn't) pull another Tiananmen when faced with civil opposition to their authority.

The truth was revealed too harshly during 88. The existence of budget deficits, the horrors and excesses of the past...

Lenin did say however, "Political institutions are a superstructure on the economic foundation." There is also a correlation (perhaps not a strong one) between economic stability and political stability. Gorbachev's uskoreniye attempted state-directed investment funded by seigniorage, while his perestroika weakened state economic controls. The credit for ending the Cold War shouldn't go to Reagan. It should go to the man who won the Ronald Reagan Freedom Award, Mikhail Gorbachev.

Just out of curiosity. Say someone else had been put in power instead of MG. And that someone else chose not to attempt all those political and economic reforms. How would things have turned out than?

Purple wrote:Just out of curiosity. Say someone else had been put in power instead of MG. And that someone else chose not to attempt all those political and economic reforms. How would things have turned out than?

My opinion? The system would have held together for a decade or two longer before collapsing. If it would have lasted until the New Millennium, oil prices would have picked up again and the Soviet Union would have enough hard currency earnings from exports to subsidize tyranny.

MG's reforms were too inept and too late.

ryacko wrote:

PeZook wrote:What, spending between 15 and 20% GDP on the military (and thus, structural problems with the economy which had too much heavy and too little light industry) had nothing to do with it?

Define heavy and light industry? Is a silicon chip fabrication plant heavy or light? This is like saying the current US economic crisis was caused by excessive consumer spending. The percentage amount of spending does not matter, it is how it is financed. Printing money is the worst method.

The Soviet government spent more then it taxed, Soviet businesses spent more then they were allowed to on wages, and prices were kept at a ceiling.

I could be mistaken, but I think there was another, more fundamental issue. Unfortunately this is a secondhand argument; I would have to dig rather hard to recall my support for it. I want to present it but don't insist on it.

My impression:

Price controls in the USSR were so perverse that central planners would inevitably have trouble figuring out what anything really cost. Trying to subsidize military production at the expense of civilian production by inflating the cost of automobiles and deflating the cost of tanks might work in principle, sure. But when it gets to where a decent sedan costs the same as a tank, which costs the same as a fighter jet... that's going to disrupt industry. Because realistically the tank requires so much more materials and labor to create than the car. You can't budget sanely without taking the difference into account.

That leads to lots of problems. Opportunity cost is one of them. Suppose a tank costs as much as a cargo truck, because the truck is inflated in price so that the civilian economy subsidizes military production. In a capitalist economy, there'd be something like a 10:1 or even 100:1 price differential, which reflects roughly the cost of materials and labor involved to make the truck versus the tank. That means that when I order a tank for X dollars, I have some sense that I am sacrificing (potentially) the opportunity to produce a large number of trucks.

In a command economy where prices are arbitrarily set to be whatever the hell the government wants, I lose this feedback mechanism. So my tank factories work at top speed, while my truck factories languish... and crops rot in the fields because while I did remember to build lots of tractors to plant them in the last Five Year Plan, I forgot to provide for a steady supply of trucks (aren't they ruinously expensive!?), so there's no system in place to get the crops out of the fields to where they're eaten.

And so on.

This is a sample of what can happen, but you see the problem inherent in the nature of price controls. If the price controls become decoupled from the real economic costs of doing something, the economy becomes very fragile.

I liked how one of Gorbachev’s first big military production reforms in 1985 was to go from producing four nearly identical main battle tank designs, to merely three nearly identical tanks. Never mind the never ending ICBM and SLBM spam. Stuff like this ensured that the USSR was not even trying to gain the socialist planning efficiency that could at least have existed on paper from having single types of complex systems.

Lack of realistic money isn't a deal breaker for advanced planning, the Soviets were always working out raw materials and labor movements and such which is what really controlled production and did judge costs on this basis. Actual exchange of money just didn't matter, as long as everyone had enough money assigned to meet wages, since workers of all types and skill were all largely paid the same amount it wasn't a big deal to make sure that happened, any exchange of money for materials ect.. was pointless paper pushing in large part. That they even bothered seems to have been mainly to emphasis that people should put in realistic estimates on requirements, since the tendency was to ask for more then was needed to make up for shortfalls.

but that was the real problem. When the plan doesn't work. Since the USSR naturally wanted to maximize production, basically all raw materials and labor would end up assigned to some task in the plan. But by nature that requires a vast slew of estimates, and very often the estimates were wrong for one reason or another. If you have realistic money and costs then you can assign more money to higher priority projects and make sure they are able to outbid other projects to get the materials and labor they need. If everything is arbitrary, and the factories don't have extra cash on hand this just doesn't work and you end up with random unplanned work stoppages, and worse, poor quality or incomplete products being shoved out to meet quotas. Then those production failures ripple across the economy, compound the effects out of proportion to the shortfalls, and once again you don't have realistic money to let you buy your way out of problems in turn such as by increasing imports.

Trying to shift around centrally allocated workers and raw materials to cover shortages at specific plants meanwhile, which was the way it was supposed to work, took far more effort and above all massive delay then a system that simplified this down to money. On paper various central reserve stocks were supposed to exist to be assigned to meet shortages, but by the 80s this system seems to have broken down, and always favored military projects anyway. It needed to be decenteralized at the least, to respond in hours and not weeks, but Gorbachev just went about it badly. From what I've read in some 60s era books I found around my gramps house, such problems as these were being very openly recognized in Soviet literature in the 1950s, but after Khrushchev fell such talk was simply suppressed again.

Purple wrote:Just out of curiosity. Say someone else had been put in power instead of MG. And that someone else chose not to attempt all those political and economic reforms. How would things have turned out than?

I recall that Stas on a couple occassions has argued favorably that the kind of reforms pushed by Andropov would have had the most chance of salvaging the situation. I myself don't know too much about it, but I figure that, aside from trying what Yeltsin did a few years later, Gorbachev couldn't have done much worse.

[quote=Simon_Jester]Price controls in the USSR were so perverse that central planners would inevitably have trouble figuring out what anything really cost. Trying to subsidize military production at the expense of civilian production by inflating the cost of automobiles and deflating the cost of tanks might work in principle, sure. But when it gets to where a decent sedan costs the same as a tank, which costs the same as a fighter jet... that's going to disrupt industry. Because realistically the tank requires so much more materials and labor to create than the car. You can't budget sanely without taking the difference into account.[/quote]
Your post doesn't really apply to communist economies. Price controls alter profits, which does not matter when all investment is the result of state initiatives, thus abolishing the use of surplus value to determine the viability of investment.

[quote=Sea Skimmer]Trying to shift around centrally allocated workers and raw materials to cover shortages at specific plants meanwhile, which was the way it was supposed to work, took far more effort and above all massive delay then a system that simplified this down to money. On paper various central reserve stocks were supposed to exist to be assigned to meet shortages, but by the 80s this system seems to have broken down, and always favored military projects anyway. It needed to be decenteralized at the least, to respond in hours and not weeks, but Gorbachev just went about it badly. From what I've read in some 60s era books I found around my gramps house, such problems as these were being very openly recognized in Soviet literature in the 1950s, but after Khrushchev fell such talk was simply suppressed again.[/quote]
Your post partially applies to communist economies. Semi-skilled workers weren't kept track of at a central office (at least certainly not to that degree), and firing and hiring did exist in the Soviet Union. Firms had very little control over differentiating raw materials (choosing between quality), but they did purchase raw materials.

Ryacko, do you think you could use quotes that work next time?

ryacko wrote:Your post doesn't really apply to communist economies. Price controls alter profits, which does not matter when all investment is the result of state initiatives, thus abolishing the use of surplus value to determine the viability of investment.

To me this seems very dense, very hard to extract meaning from. I'm not sure what you're getting at.

From my perspective, profits may not matter, but sanely allocating the flow of resources in an economy does.

That's the social purpose served by profits in the capitalist world*. It's also been the point of having money ever early civilizations invented the idea. A commodity like bushels of barley might have intrinsic value, but the reason everyone used it as a unit of value was because it made it easier to move wealth around society. Wealth that comes in measurable units can be assessed, traded, taxed, and mobilized for state projects like public works and defense.

In a modern command economy- well, Skimmer's right. You can make the system work by brute force, saying to each individual worker and each ton of steel and each kilowatt-hour of electricity "You, go over there and do this." Indeed, that's how Westerners imagine a command economy working in the first place. But it breaks down if you make mistakes, or if you forget to worry about important management issues because political doctrine tells you they don't exist.

Which is how you get the problems Skimmer talks about, and then can't fix them because you've abolished money. Money at least lets you try to measure costs in some realistic way and bring things back under control. There's a way to resolve an argument over whether building one tank is worth 10 trucks or 100 trucks other than by publishing dueling reports and sending them to the central committee.

If have planners that run a national economy without screwing up you have no need of money; if you have money and it's used rationally you have insulation against screwups. If you have neither, you're in trouble, and the USSR had neither.
_____________

*You can argue back and forth about how well this works, whether it's worth it, whatever, I don't care. This is about what it does, not how well it does it or what should be done. Functionality, not ideals.

Sea Skimmer wrote:Trying to shift around centrally allocated workers and raw materials to cover shortages at specific plants meanwhile, which was the way it was supposed to work, took far more effort and above all massive delay then a system that simplified this down to money. On paper various central reserve stocks were supposed to exist to be assigned to meet shortages, but by the 80s this system seems to have broken down, and always favored military projects anyway. It needed to be decenteralized at the least, to respond in hours and not weeks, but Gorbachev just went about it badly. From what I've read in some 60s era books I found around my gramps house, such problems as these were being very openly recognized in Soviet literature in the 1950s, but after Khrushchev fell such talk was simply suppressed again.

Your post partially applies to communist economies. Semi-skilled workers weren't kept track of at a central office (at least certainly not to that degree), and firing and hiring did exist in the Soviet Union. Firms had very little control over differentiating raw materials (choosing between quality), but they did purchase raw materials.

But he's not just talking about labor, he's talking about materials. Labor can stretch; you can get people to work six hour days or (maybe) motivate people to work ten hour days if it's an emergency. Not being able to bring in more labor at will won't stop you from getting something done.

Materials don't stretch well at all. Try to build ten six-ton trucks using only thirty tons of steel, and you will end up with either five trucks instead of ten, or thirty tons of truck-shaped scrap metal. And your assembly plant stalls out with nothing to do.

In a working system, you can deal with that. You'd have enough slack in the system that if a lone factory has trouble keeping up production you can bring in reserves from elsewhere. Buy them or beg for them from the Ministry of Production, it doesn't matter.

In a broken system, that keeps happening all over your economy and you can't make it go away. So the factories keep seizing up, turning out less than expected or turning out a worthless pile of scrap, every time something goes wrong in the factory's supply chain.


A USSR that cared less about building up massive engines of war and more about providing a functional "trains run on time" civilian economy might have done a lot better, I think. But it's in the nature of a bunch of oligarchs who basically own their country and empire 'in fee simple' that they'll want to build up a great army to keep dominating it. If the accountants can't stop them from doing so, no one else will.

Which is how you get the problems Skimmer talks about, and then can't fix them because you've abolished money. Money at least lets you try to measure costs in some realistic way and bring things back under control. There's a way to resolve an argument over whether building one tank is worth 10 trucks or 100 trucks other than by publishing dueling reports and sending them to the central committee.

How did the Soviet Union abolish money? The Soviet Union had a total war economy, the sort that even the United States had.

In a modern command economy- well, Skimmer's right. You can make the system work by brute force, saying to each individual worker and each ton of steel and each kilowatt-hour of electricity "You, go over there and do this." Indeed, that's how Westerners imagine a command economy working in the first place. But it breaks down if you make mistakes, or if you forget to worry about important management issues because political doctrine tells you they don't exist.

That's not how command economies actually work. Strawman. Once again you're not talking about communist economies.

But he's not just talking about labor, he's talking about materials. Labor can stretch; you can get people to work six hour days or (maybe) motivate people to work ten hour days if it's an emergency. Not being able to bring in more labor at will won't stop you from getting something done.

Labor can riot. And I accept his point about materials. I don't quite understand the point of why you made this argument unless you just want to reiterate an argument.

A USSR that cared less about building up massive engines of war and more about providing a functional "trains run on time" civilian economy might have done a lot better, I think. But it's in the nature of a bunch of oligarchs who basically own their country and empire 'in fee simple' that they'll want to build up a great army to keep dominating it. If the accountants can't stop them from doing so, no one else will.

What. There was a genuine fear that World War Three was going to happen during the Cold War. It must be inconceivable to you that anyone could think any Western nation could act as aggressors, but such a fear existed.