The Political Economy of Stalinism: Evidence from the Soviet Secret Archives

by Paul R. Gregory

Using formerly secret Soviet state and Communist Party archives to describe the Soviet administrative command system, this study concludes that the system failed not because of Stalin and later leaders, but because of the economic system. It pinpoints the reasons for failure such as poor planning, unreliable supplies, preferential treatment of indigenous enterprises as well as the basic principal-agent conflict between planners and producers, which created a sixty-year reform stalemate. Although the command system was the most significant human experiment of the twentieth century, its basic contradictions and inherent flaws would re-surface if it were to be repeated.

Genres: History, Economics, Russia, Politics, Soviet Union, Nonfiction

322 pages, Paperback

First published December 17, 1999

Reviews

[Frank Stein · Rating 4 out of 5]

For a libertarian type like me the real mystery of the Soviet Union's economy wasn't that it eventually imploded and collapsed, but that it appeared to creak and sputter on for so long. I was mystified how a central administration in Moscow, led by the infamous "Gosplan" planning agency, could somehow produce factories, clothes, and even cars, day in and day out for decades. Who decided where everything went? Who decided whether to produce coal or paper? Who decided who got what?

Paul Gregory's fantastic book went a long way towards answering some of those questions. I had recently read the novel "Red Plenty" about the Soviet economy but I was still left wondering how it all fit together. Gregory, a Harvard-trained economist who's been working on these problems for the last forty years, has apparently spent eons in the now open Soviet archives to discover the truth.

I think the greatest revelation for me was that the much-touted "Five Years Plans" were bubkus. Not that they weren't fulfilled, which everybody had long known, but that nobody even paid attention to them. They often weren't even finalized until two years into a five year plan. Likewise with the one year plans, which often didn't come out until May, or even the quarterly or monthly "plans," which were invariably late. Basically the whole system worked on a bunch of "preliminary output orders," telling each "enterprise" how much to produce, even though the central planners didn't know how much stuff the enterprise had to produce goods, how much it had produced last month, or how much other enterprises needed of whatever was made (often because these enterprises withheld information so as to game the numbers later in the quarter or year). Everything was constantly negotiated and changed, and enterprise leaders were semi-officially urged to work outside the official economy to procure the parts and labor they needed with cash, favors, and loans. In the end, the whole attempt to keep "material balances" straight seemed doomed (since money was supposedly extraneous, most of output was measured in tons or yards of goods, that then had to be matched to other factories who needed those goods, whose output was then matched to other factories or stores, and so on, "balanced" in other words). Stalin also kept dividing up the ministries with the goal of preventing rival power centers, and since each ministry couldn't trust others to deliver up goods, they ended up as increasingly tiny fiefdoms, for instance, steel plants would mine their own coal and iron, and even manufacture their own rail cars, despite the existence of the "Ministry of Transportation."

The description of the Soviet monetary economy, such as it was, was also fascinating. It was run by "Gosbank," their central bank and their only bank. Since money was supposed to be unimportant, fairly random numbers were attached to sales, so that one enterprise got a hundred rubles for every ton of steel, and another enterprise paid it those hundred rubles. But since Gosbank distrusted cash, these prices only were supposed to remain as bank balances, which could only be turned to cash to pay workers (yet most leaders managed to siphon off some cash for both themselves and their enterprise to trade in the wholesale black market). Still, since money was seen as unimportant, any shortcoming of funds for an enterprise was met by creating money from the central bank, so enterprises constantly created commercial loans and other promises whose failure had to be paid by the Gosbank (of course the current U.S. bank failures come to mind). Constant inflation was the result.

I would have given it five stars, but some of the book is repetitious, and the 80 odd page description of operational planning only convinced me of what the author said in the beginning, it was an unholy mess. Otherwise, though, the book is a revelatory reminder of power of pure ideas. The Soviet economy was, despite all its winks towards cynicism, really the most idealistic creation of any human society ever. It was an attempt to model every aspect of human life after a series of idealistic forms (about the power of reason, about the evil of money), and in its failure we can learn a lot about similar idealistic failures.

[Marek Eby · Rating 3 out of 5]

Mostly very good empirically, but often frustrating from the perspective of interpretation. Like so much of the literature on the Soviet economy, the "economic" framing is a serious and (for someone looking at it from the outside) fairly obvious limitation.

The key questions here are if, how, and why actors within the Soviet system behaved "economically," that is, following a logic of efficiency or by weighing costs against benefits. Gregory argues, through detailed examination of the major elements of the Soviet system, that it lacked the very basis for this kind of rational economic behavior or decision-making. Thus, the Soviet economy was doomed *as such*--that is, as an economy.

The question that never seems to get asked is whether the core aim of the Bolsheviks was actually to produce a system of economic rationality. To me it is not at all clear that this was the case. Along they often professed the superior efficiency of socialist planning over the "anarchy" of the market, this wasn't *all* they said about planning as a system.

Gregory does think beyond the economic question by considering multiple models of dictatorship and the systems of planning they might be expected to produce. But this mainly serves to create an unhelpful dichotomy between economic and political motivations, the latter being basically reducible to the maintenance of political power. Did the Bolsheviks have no political goals beyond staying in power? Moreover, did they draw such a strict separation between economy and politics? The dichotomy again reinforces how "uneconomic" the planned economy was. But again: if the system wasn't economically rational, what *was* it?

[theiskra · Rating 4 out of 5]

Despite my personal gripes with the ideological tendency that Paul Gregory ascribes to, this is a great work that explains the intricacies of the Soviet economy well, mostly its flaws, that rely on good sourcing to make arguments for seeing the Soviet economy not as a great, all-seeing and all-encompassing economic mechanism that controlled all aspects of economic life under the strict dictates of the center, but rather as a patchwork of criss-crossing and overlapping bureaucratic apparatuses which engaged in gray-market activities, headed up by a central apparatus which was more reactive and proactive.

Something that I've always appreciated about Paul Gregory, and indeed the Hoover Institute researchers at large, as their studious work collecting communist literature and primary sources, which Gregory relies on for this work heavily.

Gregory's ideas concerning the Soviet economy are not fully novel, and academics and activists on both the left and right had levied accusations that the Soviet economy was not as well organized as it could be. For instance, in 1980, Zaleski called it a 'centrally managed' economy as opposed to a centrally planned one, and in 1985, Andrew Howard Wilhelm's wrote "The Soviey Union Is An Administered, Not Planned, Economy" which argued that the economy was merely overseen by the administrators, with economic activity was mainly occurring based on similar market processes as the capitalist enterprises in the West, with Soviet authorities responding to consumer demands and attempting to reach equilibrium prices, similarly to the West, with the plan merely operated around and in terms of this price-based structure. In essence, the argument of these works is to say that the Soviet economic authorities attempted to 'bureaucratize' the market, i.e. replicate market structures but through the lens of a bureaucracy, which caused it to be inferior to market economies, which relied on price signals determined by the free market. Gregory's work seeks to essentially confirm this view through a close look at the Soviet archives, finding numerous instances of Soviet attempts to create the 'ideal' socialist model (making currency operate as 'labor vouchers' which was an idea started by Marx, subjugation all economic activity to the plan, etc.), which failed and resulted in a system of 'central management' instead a truly planned economy. While the Soviet central organs held enormous sway and was able to force through certain policies onto the lower level bureaucracies for political, economic, or geostrategic reasons, day-to-day economic activity was characterized by the mid-level economic organs, the glavki, readjusting plans in accordance with realities on the ground and exchanging certain goods between enterprises/regions to help fulfill the plan and even use semi-legal credit from other enterprises, forming gray market relations between enterprises. Gregory argues that this system was one destined for failure, as it created, in his words, 'a thousand dictators', which instilled a tradition of buy cheap and sell dear with regards to information, creating perverse incentives that hampered the government's ability to care for their citizens.

Gregory makes a compelling case for his argument in this book. While I disagree with the conclusion and its Hayekian logic, I nonetheless have found that this work has greatly influenced my opinions of the Soviet Union and the nature of socialism as it actually exists. The ability to absorb, deliberate, and integrate parts of others' ideas into your own worldview is essential to seriously pursue the truth, and this book is great for those who want to understand the Soviet economy.