David R. Henderson  

Don Lavoie on Soviet "Growth"

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Today there is a growing consensus that the contemporary Soviet economy serves the consumer very poorly (e.g., see Goldman 1983), but this criticism is often accompanied by a concession that the Stalinist model is suitable for rapid development and fails today only because it lacks the flexibility to foster continued growth in a technologically advanced economy. We should recall, however, that a generation ago economists were apologizing for the low standard of living of the Soviet population by contending that the economy was building up productive capacity for the future. Now that the future has arrived and the standard of living remains embarrassingly low, we are told that the great gains of the Stalinist model were in the past. It seems that the only accomplishments that this model can boast about are statistics on certain investment goods such as steel production, which were achieved at the long-run expense, rather than for the presumed long-run benefit, of the Soviet citizen.
This is from Don Lavoie, Rivalry and Central Planning: The Socialist Calculation Debate Reconsidered. It's one of the readings for the Liberty Fund Colloquium, "Markets, Socialism, and Liberty," that I'm attending this weekend in Hermosa Beach.

When I taught a course in Prague in 1999, one of my students, the oldest man in the class, remembered Communism because he had gone through it as an adult. One day, during a break, he came up to me and said, "The basic problem with Communism is winter," [I thought he would stop there because he hesitated, but he went on] "spring, summer, and fall."

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COMMENTS (5 to date)
Bostonian writes:

To what extent is Chinese economic growth today similarly inflated? China is not the totalitarian state Stalin's Soviet Union was, and it has competitive exporters. OTOH, there is a policy of prioritizing infrastructure and industrial production rather than consumer goods.

Mark Michael writes:

One thought is that a command economy can copy industries and production methods developed elsewhere fairly easily, and that's what they did. For example, I've read that the Bolsheviks were impressed with Henry Ford and his assembly line for producing cars. They used the idea of assembly lines to produce lots of their goods throughout the Soviet Union. Similarly, you can copy how to build an airplane from the Wright Brothers, et al, steel mills from U.S. Steel, etc. It's much tougher to come up with brand new ideas. There's no off-the-shelf blueprint to follow.

After the Soviet Union collapsed in 1991, westerners who studied the USSR economy, made fun of how they had centralized the production of so many goods into a single or at most 2 or 3 factories. They were optimizing the "efficiency" of those assembly lines, mass production techniques that were all the rage during the early 1900s were never rethought in a serious way, apparently. Another problem with command economies: inertia is a big problem, I'd think.

After WWII Japan grew at 10% per year for quite a few years. Their industrial plant was mostly destroyed during the war and they could rebuild using the latest technologies, mostly from the US. I recall back in the 1960s on an airplane talking to my seat-mate; his father designed steel mills. Said the only place his father had any business was in Japan. They were building state-of-the-art plants; the US companies were not. They were sitting on their hands. Japan also jumped on the new solid-state technology and used it to recreate known consumer goods: radios, TVs, communications. Once they matched the US in the 1980s, they had to innovate to come up with new products and services. Their "miracle" economy at that point became just another economy. Their strong "consensus" culture is not as compatible with the needed creativity and innovation a cutting edge economy needs as, say, the US culture is.

China, also, so far is just copying technology, methods, techniques that were developed in the West. In fact, most of the serious production in China comes from plants, factories built under Western company supervision. Taiwan, Hong Kong, America, S. Korea, Japan, European countries all have sponsored plants in China. Once they "catch up" to the West they'll have to innovate just like everyone else.

Elvin writes:

I think China is much closer to the mixed economy that my Samuelson textbook in the 1970s extolled. I visited the Soviet Union in the late 1970s and people would stand in line waiting for goods and food. I don't think they do that in China--they'll let market prices clear the market and allow for more imports. Consequently, the consumer is far better off in terms of service and variety. (Quality is another issue.)

An aside: no one in the Soviet Union believed me when I said that I lived in a house and had my own bedroom.

I believe Krugman wrote an article about confusing catch-up growth with a truly superior economic model. He was commenting on Asian Tiger miracles, but noted that it applied to the Soviet Union from 1930 to 1960 and America from 1880 to 1950. I would assume it applies to China today. His point, as I remember, was that the gains from moving from 80% illiteracy and subsistence agriculture to 90% literacy and 80% living in cities were huge. After that, the gains dropped a lot.

John writes:

Has anyone heard talk of having Rivalry and Central Planning re-printed?

Vacslav writes:

You can easily turn the long-run expense into an achievement: communism is superior precisely because communists can endure communism. Think of the Geoffrey Miller's metaphor of the peacock's tail: you can't really fly, but you can mate and feel being superior. The Soviet propaganda machine exploited that.

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