The Need for Planning and the Decline of the Soviet Economy

My article defending the record of Soviet socialist economic planning was published by the online Marxist journal Cultural Logic:

The Need for Planning: The Restoration of Capitalism in the Soviet Union in the 1950s and the Decline of the Soviet Economy

Soviet central planning, up until Stalin’s death in 1953, created a robust and technically advanced economy. It was not ‘unsustainable’ as is usually argued. If the socialist planning system had continued after Stalin’s death, the Soviet Union could have been a great economic success story. Instead, after 1953, the Soviet Union had a state capitalist economy with rather uninspiring rates of economic growth. The primary reason for this slow-down was the way the new economic structure and ideology undermined technical progress. Effective planning had been ended but a fully competitive, free-market economy was not introduced. This undermined effective incentives for technological innovation. This led to a progressive slow-down in economic growth. Before Stalin’s death innovation and technical advance had been successfully introduced into the economy via the central plan. After Stalin’s death attempts were made to introduce ‘endogenous’ incentives for innovation that were intended to copy market mechanisms. This was part of a wider effort to introduce market socialism. This hybrid economic system contained inadequate incentives for innovation.

The article also directly addresses the allegation that the nature of the socialist system itself in the Stalin-era led to mass executions and famine.

The academic Paul Cockshott made some criticisms of the article and I replied to them.

Cockshott Criticism and Response

The gist of the issue was about incentives for innovation in the Soviet economy.  My argument was that the abandonment of Stalin’s economic model in favour of an attempt at a quasi-capitalist system was responsible for economic slow-down.  Specifically,  after 1955 the Soviet authorities attempted to stimulate innovation in the economy by awarding a high temporary price for any product deemed to be new.  This provided an incentive for firms to introduce new products as it would increase their profits. (Soviet firms were expected to cover their costs as well as meeting other targets such as targets for gross output.)    The pre-eminent writer on innovation in the Soviet economy, Joseph Berliner, had stated that the temporary price system undermined Soviet innovation by stimulating a large number of simulated innovations. For example, enterprises could just produce an old product which had started with a high temporary price when new but which still maintained this high price over time due to administrative failure.  As the costs of producing a new product tend to come down over time it was more profitable for them to produce a product like this than a genuinely new product that would have the higher price, but would also create a higher cost burden. Berliner’s work showed there were many old products that still had high ‘temporary’ prices for enterprises to select.

Berliner argued that the pre-1955 system of providing subsidies for innovation rather than temporary prices was superior as subsidies were removed once the product was no longer new, unlike many temporary prices.  As I think, Cockshott is probably saying, Berliner’s account of this is under-documented.  The article would have been strengthened if Berliner had fully referenced his account of the superiority of the subsidy system.  However, it must be remembered that  in general Berliner based much of his work on discussions with Soviet emigres who had worked in Soviet industry as managers and described how the economic system worked at ground level. It may well be that Berliner arrived at his conclusion that the subsidy system was more efficient than temporary pricing from his interviews with the emigres.

However, there needs to be far more work on the reasons for the Soviet economic slow-down.  For example, why do commentators on the Soviet economy insist that efforts to promote profit as the central success indicator should have led to greater economic efficiency?  Prices were still fixed so increasing the importance of the profit incentive would surely just make phoney innovation of the type discussed above more attractive to enterprise managers.  It seems likely that the market reforms that began with Khruschev were actually the problem rather than any kind of solution and this surely needs to be gone into further.



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