WIIW The Vienna Institute for International Economic Studies - Wiener Institut für Internationale Wirtschaftsvergleiche

By Vladimir Gligorov

• Following the October Revolution of 1917, the Bolsheviks attempted a radical social and economic transformation of Russia.
• However, by the early 1920s, mass shortages and hyperinflation had arrived. This saw the abandonment of the command economy and the introduction of the New Economic Policy NEP.
• The experience of the 1920s stimulated a renaissance in economic science both within and outside Russia. Many new and interesting ideas emerged. Intellectually this was a fertile period, as Russian policymakers pushed for industrialisation and catching up with the West.
• However, the Stalin’s rise to power heralded the end of internal debate, and the emergence of collectivisation as the dominant economic strategy. This had enormous social costs.
• The period after Stalin’s death was one of a series of failed reforms, but a much bigger international role for the Soviet Union.
• Today, the rubble of the destruction wrought by Stalin is still visible. For Russia, the last 100 years have largely been wasted.

On October 25th 100 years ago (according to the old Julian calendar), one of the most significant events of the 20th century—the Russian Revolution—took place. Despite later claims to the contrary by some, there was nothing inevitable about this. In the summer of 1917, Vladimir Ilyich Ulyanov—better known as Lenin--had been forced to flee to Finland after an unsuccessful attempt to seize power. Lenin was at this time terribly unpopular in Russia, seen as a German spy and ridiculed in the press.

Lenin arrived back incognito at St Petersburg’s Finland Station in early August. Just a few months later, the Bolsheviks, led by Trotsky and Lenin, stormed the Winter Palace. Soviet Russia was born. The story of how this happened has been told in numerous historical accounts. What is clear is that the coup came first, revolution followed. One account that is particularly distorted, but has certainly been the most influential within Russia, was the History of the Communist Party of the Soviet Union: Short Course, originally published in 1938, with the famous chapter on dialectical and historical materialism by Stalin.

Civil War erupted almost immediately and lasted for several years. The Soviets signed a treaty with Germany in Brest-Litovsk and took Russia out of the Great War in early 1918. They immediately went about destroying the state institutionally, by setting up soviets, i.e. revolutionary councils, and by monetary means. These actions followed Lenin’s blueprint in his The State and Revolution, certainly his most widely read and influential book, written in August and September, just ahead of the takeover in 1917. The promise of freedom and access to land pushed the peasants towards the Bolsheviks, probably best fictionalised by Sholokhov in Tikhii Don (And Quiet Flows the Don), and the long-accumulated disgust with the Tsarist rule among the intelligentsia, from Gorky to Blok, provided for public support in the cities in particular. Destruction of the state was the means of achieving a revolutionary takeover and post-revolutionary power, with a view towards building a communist society.

Once the civil war was won, however, the heroic period of the revolution ended. Specifically, this can be dated to the Kronstadt Rebellion of March 1921. Hyperinflation led to a barter economy and mass hunger in 1921-1922. As a result, the early attempt to build the communist (Soviet) society and (barter) economy failed miserably. In the spring of 1921, the New Economic Policy (NEP) was announced. This essentially reintroduced the market economy, reinstated central banking with currency reform, and coupled price liberalisation with that of private investments. Prices stabilised surprisingly quickly, shortages disappeared, and production recovered. The NEP lasted a decade and remained an underground policy inspiration and alternative throughout the existence of what would come to be known as “real existing socialism”. Indeed, Deng Xiaoping was inspired by it and China’s post-1989 development can be seen as a variant of the policy first introduced by the NEP.

The renaissance of economic science in Russia

During the 1920s, events in Russia stimulated a renaissance in economic science both inside and outside the country. Perhaps the best, though incomplete, account is that of A. Ehrlich, The Soviet Industrialization Debate: 1924-1928, published in 1960. John Maynard Keynes visited the Soviet Union in 1925 and published an account in 1926, reprinted in his Essays in Persuasion, in three instalments, of which the one devoted to the economy is probably the least insightful (the other two were on politics and ideology). However, there is no substitute to reading the Russian economists themselves. A collection of articles by some of the most prominent contributions was edited by Nicholas Spulber, Foundations of Soviet Strategy for Economic Growth: Selected Soviet Essays, 1924-1930 (published in 1960). It is striking how economics, not just as a science but as policy, was rediscovered in the midst of the triumph of political voluntarism in just a couple of years.

The key policy issue and the centre of the debates was how to plan economic transformation, i.e. industrialisation, and growth in a mixed economy, i.e. with state and private ownership and investments, and with one party as owner and ruler. Two main approaches can be distinguished. One was that of Gosplan, the state planning agency, which was working on one or the other versions of indicative planning, very much emphasising statistical methods (Vladimir Groman being the main person behind the enterprise). An alternative was provided by Preobrazhensky’s The New Economics (1926) in which he argued for the use of disequilibrium prices in order to transfer resources from agriculture to industry; in other words, using the market, but with rigged prices, to induce the shift from investment in agriculture to that of industry. The latter approach is much better known and influential among economists.

The overriding aim of Soviet policy during this was period was industrialisation. The problem was that market liberalisation and a mixed economy—the state’s control of the commanding heights of power and industrial property, combined with private ownership of emerging small and medium size firms plus private use of land—tended to erode both the ideology of the revolution and the one party control of the government. That was also fuelled by the ideological and political competition within the Communist Party itself, in which the more liberal faction, led by Bukharin, was starting to get the upper hand.

The start of collectivisation and harder times

Out of this ideological and political competition the strategy of collectivisation emerged, led by Stalin. Collectivisation meant state ownership of land and of practically everything else. The pretext for the collectivisation drive was the food shortage attributed not to the rigged market prices but to the rising class of kulaks, the rich landowners. Capitalism, Stalin argued, was rearing its head and was conspiring not only against the government and the ruling Communist Party but against the revolution itself. As a result, in late 1929 and in 1930 the food front was opened, and with bloody coercion and famine land was collectivised, which is to say became state owned, following by everything else, from production to trade. To alleviate shortages of food (which would go to plague the country until the collapse of the Soviet Union), small backyard plots were allowed to be used for agriculture and their products could be sold in open markets. Defying returns to scale and scope, these small plots proved to be much more productive than large collective farms.

From than onwards, state ownership, coercion, and ideological rigidity were the main characteristics of the Soviet system and of the Socialist World System that sprang up after the end of World War II. With collectivisation of land came resettlements of ethnic minorities , the sham trials of leading members of the Communist Party, and the creation of widespread system of concentration camps, which Aleksandr Isayevich Solzhenitsyn gave a detailed account of in his Gulag Archipelago. The costs of the collectivisation and of the reign of terror in the 1930s are the subject of long-standing debate, but were certainly not small.

The gist of the ideological argument for the purge of the Communists, dramatized memorably by Arthur Koestler in Darkness at Noon, was that, deep down, everybody, every Communist that is, is a traitor to the cause, truth and facts notwithstanding. Dramatically, the accused are asked to interrogate themselves and thus inescapably find themselves to be guilty, and confess to the interrogator and in the court of law. That led to a widespread practice of writing self-criticisms, which the Party could use, if the need arose. The confessions were made under coercion, but the ethical and cognitive hold of the ideology made the confessions convincing even in cases where the factual claims were plainly wrong.

Stalin represented a major break with what came before

It is hard now to understand how fundamentally different was the system that Stalin imposed in the 1930s. This is in part because the spirit of that decade is the key to the understanding of it, while the perception of the Soviet system has mostly been influenced by World War II and developments in the 1960s and 1970s. This is also the reason that the Soviet system is usually seen as a model of stability, which is why its collapse is seen as quite unexpected and is often explained either by adverse economic developments or by international political pressure.

The 1930s, however, saved Stalin’s reign of terror mostly because the liberal alternative, which drove the New Economic Policy of the 1920s, was losing, and losing badly, throughout the Western World. First there was the Great Depression, and then the rise of Fascism and Nazism. Stalin also abandoned internationalism, with the policy of socialism in one state. That implied that the whole world was against the Soviet Union; the pervasive presence of external enemies helped internal stability. Still, as Stalin eliminated practically the whole Russian elite and filled the Gulags to the hilt, he certainly did not feel safe.

In one respect, the Soviets were more successful in the thirties than at any time afterwards, and that was in their international appeal. In the context of gloomy political and economic developments in the West, news of huge successes in industrialisation had a widespread appeal. Karl Polanyi’s argument in his The Great Transformation (first published in 1944) that liberalism leads to fascism and Nazism was highly influential, and therefore collectivism and indeed Stalinism were seen as a promising alternative. Stalin himself saw liberals, because of Bukharin, as enemies of first order, with internationalists, i.e. Trotsky, as their ideological and political allies, so his claim of two right-wing alternatives explains in part his preference for Nazi’s and his hopes of Communist-Nazi alliance against liberalism and cosmopolitanism (again, Trotsky’s internationalism).

This presumed stability led to the theory of totalitarianism, which was by far the most influential paradigm of understanding the Soviet system. In fact, Nikita Sergeyevich Khrushchev’s speech at the 20th Congress of the Communist Party in 1956 should have been enough to dispel any belief in the totalitarian system and its stability. In it Stalin was portrayed as a monster and his system as one of brutal and completely illegitimate rule of terror. Khrushchev himself and the Politbureau members were surprised that there was no mass revolt. Soviet society, however, was exhausted by terror and war, and was relieved that the dictator was dead.

After Stalin: A series of failed reforms, but a much bigger international role

From 1956 onwards, the Soviet Union was all about reforms and their successive failures. The key problem was how to increase the efficiency of investments, and perhaps the main attempt to solve that problem was Leonid Vitaliyevich Kantorovich’s book on The Best Use of Resources, published in 1965. However, reforms tended to go in the direction of profit sharing between the state and firms, which then naturally raised the question of possible NEP-like reforms with private ownership coexisting with the state ownership. That however again raised the question of political adjustment, which doomed practically all reform proposals.

Significant Soviet influence abroad persisted long after World War II ended, to a large extent because of the changes that occurred in post-war Europe and in the post-colonial world. Following WWII, the Soviet Union took over a lot of international responsibility, and benefited from it. It returned from the idea of socialism in one state to socialism as an international movement. That led to overextension in Europe initially and then in Afghanistan and in Africa, indeed all the way to Cuba. Huge global power, however, was based on non-existent internal legitimacy, which in the end doomed the Soviet Union itself as well as the Socialist system in large parts of Europe and in other parts of the world. The system was never based on political, but rather on ideological legitimacy. The latter, unlike in China, was not openly nationalist, but rather based on the ideal of a fair economy and society. As a result, it was never democratically tested. Once it was, in the first instance in Central Europe, it collapsed, proving all the totalitarian theories wrong.

Legacy: A hundred wasted years

Looking back at the 100 years since the Russian revolution, what is surprising now is the extent of the wreckage. It is enough to just go through the contents of Leszek Kolakowski’s Main Currents of Marxism to see how quickly so many people fell into irrelevance. The whole enterprise produced almost nobody worth committing to collective memory after Stalin’s attack on the Russian intelligentsia in the 1930s, except for dissidents. Meanwhile the rubble of institutions, policies, and economies is enormous.

It all went wrong with the rise of Stalin and collectivisation. Initially, the Russian Revolution was seen as an instrument of freedom, however terrible it indeed was, and it ended in the erection of the gulags. The collapse of support for liberal policies and institutions facilitated the rise of Stalin then and of his cult in Russia now. In short, a hundred years wasted, though not in solitude.