Home > political-economy > A brief pause from bitch-slapping Paul Krugman to focus on Soviet and American political-economy

A brief pause from bitch-slapping Paul Krugman to focus on Soviet and American political-economy

February 22, 2010 Leave a comment Go to comments

Do us a favor: Take off your ideological blinders; suspend the effects of your years of instruction in the indoctrination camps known as the American education system for just a moment.

We’re going to let you in on a secret: Despite what you have heard and been taught all your life, there was, in fact, very little difference between the economy of the United States and that of the Union of Soviet Socialist Republics.

That’s right. Do you need to sit down and catch your breath? Breathe, breathe … Better?

O.K. Let’s continue.

Back in the USSR

Such distinctions as can be made between the two economies were purely superficial: The Soviet economy was centrally administered, while the US economy is loosely managed by Washington; the Soviet economy administered prices, wages, investment and foreign trade, while the US economy allows for floating prices, wages, investment and trade; the Soviet economy did not tolerate unemployment, while the US economy more or less functions with a permanent reserve of unemployed – which level fluctuates up or down during recessions and booms.

To avoid overstating the case: Those superficial differences amount to a lot at a certain level of analysis: Based on the Soviet experience, one would think financial crises could not happen; while in the US experience, financial crises happen often enough to have their own souvenirs: I survived the Great Asian Melt-Down, or My Mother Caused The Argentina Crisis, And All I Got Was This Lousy T-shirt.

Beneath the superficial differences, however, what both economies shared was their hostility to work born of the constant demand for greater and greater amounts of surplus social labor time to feed their military machines, and support the lifestyle of the elite. Since each economy was based on the very work they sought to reduce, they both were inherently self-destructive: In terms of their historical trajectory, the Soviet economy was headed for an inevitable demise, and the US economy is following it now. The demise of the Soviet Union was not caused by a defect in the way its economic system functioned; the same is true for the present self-destructive path of the US economy.

Necessary waste

For this reason it is not at all surprising to read that Josef Stalin and Bertrand Russell agreed that, eventually, working time would have to be reduced in their respective economies. This was no insight of great genius on their part, but the logical conclusion drawn from understanding the dynamic corrosive effect that constantly mounting improvements in technology had on the length of the working day, coupled with the realization that this improvement in technology must, sooner or later, outstrip human need – forcing mankind to reduce its hours of work on pain of catastrophe.

Karl Marx pointed to this tendency as the irreversible outcome of all such systems:

Capital itself is the moving contradiction, [in] that it presses to reduce labour time to a minimum, while it posits labour time, on the other side, as sole measure and source of wealth. Hence it diminishes labour time in the necessary form so as to increase it in the superfluous form; hence posits the superfluous in growing measure as a condition – question of life or death – for the necessary.

He wrote this in a collection called The Grundrisse, and if you ever tire of poking a sharp burning stick in your eye, you might want to spend some time reading it instead – it’s only a little less painful. Basically, he concluded that economies like the United States and the Soviet Union would become increasingly dependent on wasteful, unproductive employment even as the economy itself became more productive.

What is oddly dangerous about this process (oddly dangerous in the way that term might be used to describe an extinction level event) is that, on the surface of the economy, growth slows as the sheer waste of economic resources takes its toll on the performance of the economy. This is indeed what we find in the Soviet era document we quoted in the previous section:

Since the early 1970s a salient feature of the economic environment has been the decline in growth rates of the production inputs, i.e. the main resources needed for economic development – labour, investment, fuel and materials. As can be seen from Table 2, fixed assets (capital stock) grew by less than 30 per cent in the last five-year plan period compared with 52 per cent in 1971-75, and production of fuel and raw materials grew only 6 per cent in 1981-85, compared with 25 per cent in 1971-75. The labour force showed very little growth in the first half of the 1980s.

The elite who control the economy (in the US these are the huge multinational corporations, and in the SU it was the top leadership of the Communist Party) respond to this by throwing still more resources to counter a fall in the rate of growth, rather than acknowledging the need for shorter hours:

Attempts were made to offset this downward trend by old means, i.e. by using more inputs yielding ever diminishing returns. But these led to a disproportionate build-up of the fuel and energy sector, an obsessive development of new natural resources and their irrational use, an unwarranted induction of additional labour reserves, growing financial tensions and declines in labour productivity growth, the capital-output ratio and other indicators of efficiency. Endeavours to remedy this situation by launching new construction projects aggravated the growing economic imbalance. An economy with immense resources available found itself faced with an acute shortage.

This is probably the most dangerous phase of the bubble (Yes, the Soviet Union was also a bubble economy.) When the appearance of a slowing rate of growth masks the very rapid silent expansion of productive capacity, the productivity of labor is able to reach its most extreme point of contradiction with the actual wasteful employment of labor resources.

Change you can believe in

Instead of doing what they should have done – reduce hours of work immediately and drastically – the Soviet elite did what every elite does, irrespective of ideological prejudices: They jumped ship with the life-rafts, and left everyone else to die on the Titanic. Which is to say, they began implementing reforms to make the Soviet economy look more like the US economy.

The new plan came with the worn out, threadbare menu of promises made by politicians everywhere that this time they were serious – “Really, we mean it. Things will change in this country.”

Change began, of course, by recycling the old goal achieving a higher rate of economic growth:

The essence of the new strategy is the concept of accelerating economic and social development by raising the annual rate of GNP growth from 3 per cent to 4 per cent in the next few years and to 5 per cent in the next decade.

What was supposed to make this old worn out promise new and different is that not just any old growth would do. Gorbachev’s growth would be high quality growth, that would focus on strategically important sectors of the economy, accompanied by radical structural changes, which would improve the lives of ordinary Soviets.

Change was coming to Moscow!

… [T]he new policies encompass the democratization of political life, fuller participation of the people in the decision-making process at all levels, an irreversible move towards a more open society with “glasnost” (openness) becoming an essential ingredient of the Soviet way of life along with freedom of cultural expression. The current drive for restructuring thus amounts to a drastic shake-up of the entire Soviet economic and social order.

There would be an emphasis on new technologies, old plants and equipment would be modernized and upgraded, depreciation of equipment would be accelerated – allowing for quicker turnover and introduction of more productive capital. Government would manage the economy in less intrusive ways:  Concentrating central planning on sectors of national importance, but leaving other sectors to local and even company level management. Moscow would no longer oversee the daily operations of its far-flung infrastructure. Decisions on prices, profits, wages, employment would be relaxed. Companies could buy and sell machinery without permission from the central bureaucracy.  Managers would get incentives for innovation, others would be able to start their own businesses. Companies would be able to sell their goods in the global markets, and accept foreign investors.

Companies would be allowed to go bankrupt, they could hire and fire employees as they saw fit, income inequality would be allowed to grow, prices controls would be eliminated, and, most ominous, the plan included one additional measure: workers would be receive “incentives to improve productivity.”

It was the neo-liberal wet dream realized in the heart of the most implacable enemy of Western market-style economies. And, in short order, it triggered a massive implosion of the economy. Wages fell, prices skyrocketed, investment came to standstill and contracted, the domestic market was flooded with cheaper foreign made goods – the Union itself disintegrated. All the imbalances which had been held at bay by years of central planning erupted at once, and within several years Moscow was begging for handouts from the International Monetary Funds.

It is likely that all of this could have been prevented if the desire for greater efficiency and improved standard of living had been attained by a sharp reduction of hours of work – a measure which would have forcibly wrung the inefficiencies out of the Soviet economy quickly and painlessly. Instead, to preserve its privileged position and its massive military machine, the leadership of the Soviet Union embarked on an ill-fated menu of reforms which sentenced the people of the Soviet Union to two decades of misery and impoverishment – a catastrophic collapse of their conditions of existence.

Washington faces a similar set of choices today: Its failed economic policies of the post-war period no longer work, and the deregulation and neoliberal reforms of the recent period have resulted in an ongoing economic crisis. Avoiding the reduction of hours of work in pursuit of some half-baked modified version of the economic growth policies will only make it worse.

There is one other distinction between the Soviet Union and the United States that is of great significance to us: The events leading to the demise of the Soviet Union were, by its very nature, local to the Soviet Union. Because of the decades of relative isolation from global markets, this implosion represented more of an opportunity than crisis for the rest of the planet.

By contrast, because the United States is a global empire, its demise will result in sudden economic collapse, not just here, but everywhere and at once.

  1. Peggy Dobbins
    March 1, 2010 at 1:54 pm

    This is such a welcome analysis. Who would have thought of using the ussr to explain the crisis of economic success– increased productivity– that can only be resolved by delivering the fruit–freedom(increased leisure) to those whose prductivity increased.

    I’d suggest editing out the intro and other places where you sound sarcastic and “too witty by far.” I understand all too well the feeling that one’s contribution is so uninvited and unwelcome that those to whom it IS a gift have to be tricked and enticed to open their present by packaging it “artfully.” Your insight and persistent effort to get the simple logic across is welcome here. Write as if Valerie Jarrett had asked you to prepare your best case on one page with extensive end notes for the president

    • charley2u
      March 2, 2010 at 8:58 am

      Those are all good suggestions, Peggy! I am going to give it a try.

  2. Alex Dyakov
    January 17, 2012 at 3:41 am

    So I was born, raised, and educated in the USSR; now I live and work in the USA. I am in no way a product of the US education system, with the plight of which I am intimately familiar, having taught college mathematics for several years. I also know a fair bit about the Soviet military-industrial complex, having been trained to join it.

    Believe me, when you say that “very little difference between the economy of the United States and that of the Union of Soviet Socialist Republics”, and that the USSR was a “bubble economy” (in what sense? certainly not in any US sense – it was, in fact, a _deficit_ economy with a huge number of bottlenecks).

    You ideas of the Soviet economy appear to come from Paul Krugman. Although he sounds very authoritative, he knows very little about it. I suggest you read economists who actually knew the system from the inside, such as Igor Birman.

    • January 17, 2012 at 8:06 pm

      Sorry, but most of my ideas come from the CPSU, Kornai and Kalecki on the Soviet Union. However, I am very interested in your material. If you could point me in the general direction of works you think are useful, I would appreciate it.

  1. March 5, 2010 at 8:11 am

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