Stalin’s USSR: An Economic Super-Achiever

In the past, the Soviet Union of Stalin’s time and indeed, the China of the Mao era were seen as economic development models for the rest of the world.  They were countries that had been mainly rural before their revolutions, and that had then started a process of rapid industrialisation and development. The Stalin era, in particular, was seen as a time of super-accelerated growth in infrastructure and heavy industry. Yet in the present day, we find that bourgeois academics choose figures that show the economic record of these countries in the worst light possible.  As can be seen on the rest of this blog ‘confirmation bias’ unceasingly leads academics to cherry-pick statistics and quotations from documents that combine to create a picture of socialism as a genocidal, economic disaster.  But when people actually dig a little into these statistics and documents and apply proper methods, the truth turns is shown to be the complete opposite.  Proper research into the actual history of socialism can overturn the untruths and reinvigorate the fight for an alternative to capitalism and imperialism.  Mao’s China will be looked at in another post, but we will examine Stalin’s Soviet Union here.

In the case of economic growth, it is a simple matter of applying to the Stalin era the method that might be typically used to assess the economic growth of a capitalist country.  Basically, economic growth can be calculated by the Laspeyres method, the Paasche method or the Fisher mean method. (Modern, advanced countries tend to use the chain-link method, but the late 1920s Soviet Union  did not really yet come into this category of nation.) The Laspeyres method measures GDP growth in the prices of the initial base year.  So the GDP growth of the Soviet Union from 1928-1937 could be measured in the prices of 1928.  The Paasche method measures GDP growth in the prices of the final year.  So the GDP growth of the Soviet Union from 1928-1937 could be measured in the prices of 1937.

The Paasche method tends to understate growth.  This is because over time, people tend to buy fewer goods that have relatively higher prices and switch to goods with relatively lower prices.  Therefore sectors with smaller increases in prices will tend to have larger increases in output.  So in the final year, the value (price × quantity) of the fastest growing sectors will tend to be relatively lower than the slower-growing sectors, which maintained relatively higher prices. Thus the Paasche method undervalues those sectors which are growing fastest, which depresses the total estimate of the value the economy is producing.

It can be seen therefore, that if a Laspeyres index is used, growth is overstated. Those same sectors that have declining prices and the bigger increases in output are valued in the prices of the base year, which will be a lot higher than the prices of the final year.  The opposite bias therefore exists, and the total estimate of the value the economy is producing is inflated.

One obvious solution is to take an average of the Laspeyres and Paasche calculated GDP rates or a geometric mean.  This is known as the Fisher mean approach, which is generally seen as superior to relying on either the Laspeyres or the Paasche method.

So of course, when academics calculate the economic growth of the Stalin and Mao era, a naive reader might expect them to use the  Fisher mean.  But sadly they do not.  With the odd exception, they use a Paasche, thus giving the lowest growth possible.

The generally accepted figures for Soviet growth in the Stalin period were produced by Richard Moorsteen of the US government-linked RAND corporation and Raymond Powell of Yale University in their 1966 book Soviet Capital Stock 1928-1962. They give a figure of 6.2% growth in Gross National Product (GNP) for the period 1928-1937.  This covers the first and second five-year plans.  These are the figures relied on by Angus Maddison in his reconstruction of Soviet growth for his widely-used historical database of world GDP.  They are widely quoted by others such as R.C. Allen in his influential book Farm to Factory: A Reinterpretation of the Soviet Industrial Revolution. 6.2% seems quite impressive, but it must be realised that the average population growth in this period was 2.1%, which brings per capita growth down to a slightly less impressive 4.1%.  As a rough guide, economic growth in India is currently around 6% (it recently dipped to 5.8%).  According to the World Bank, population growth is 1% a year, giving it a per capita growth rate of about 5%. India is generally presented as the modern example of capitalism leading to the rapid growth and development of a mainly rural country.  ‘Shining India’ has long been used as a positive example of the success of ‘economic reform’ and globalisation.  China’s current growth rate is currently 6.2% with a population growth rate of 0.5% to give per capita growth of 5.7%.

Measured against examples like modern India, Stalin’s Soviet Union seems, therefore, an achiever rather than a super-achiever in economic terms.  However, this slightly mediocre verdict would be misleading.   On page 286 of Moorsteen and Powell’s book, we find that that they give figures for 1928-1937 in two sets of prices.  One in 1928 prices and one in 1937 prices.  The prices of 1928 give a figure of 11.9%, and the prices for 1937 give a figure of 6.2%.  So if we take a geometric mean of the two figures we get a figure of 8.6% for a per capita growth rate of 6.5%. This is higher than current per capita growth in India or indeed today’s China and looks like an endorsement of Stalin’s economic system.

However,  this is not a figure Moorsteen and Powell will use.  Why not?  They say (page 276-277) that this is because the 1928 prices were more unreliable than those of 1937. This is because of an oversupply of labour in rural areas in 1928 lead to artificially low prices for agricultural goods.  On the face of it, this is ridiculous.  All countries beginning industrialisation tend to have an oversupply of rural labour.  India still has an oversupply, so by this standard, all of its economic statistics whether measured on a Paasche or a Laspeyres basis would have to be dismissed and economists would have to shrug their shoulders when asked how the Indian economy is doing.  Besides, even if there was some reason to dismiss the Soviet figures in 1928 prices (which there is not) why do academics simply quote the 1937 figures as the correct figure?  Surely the correct thing to say would be that 6.2% for 1928 to 1937 is one figure but that the actual growth rate was likely to have been significantly higher than that.  No economist, as far as I know, says that.

A per capita growth rate of 6.5% is much higher than any growth rate in subsequent Soviet periods.  The generally accepted later growth rates for the Soviet Union were provided by the CIA and these will be found in any economic history of the USSR:

CIA-Measures of Soviet Gross National Product in 1982 Prices

From page 8 of this CIA report, we can calculate the Fisher mean of Soviet growth rates calculated in 1970 and 1982 prices and we get the following:

GNP              Population Growth           Per Capita GNP Growth

1951-60       5.4%                     1.8%                                3.6%

1961-70        5.0%                     1.3%                               3.7%

1971-80        2.8%                     0.9%                                1.9%

1981-84        2.2%                   0.9%                                  1.3%

Population growth figures are from Gur Ofer (1988) ‘Soviet Economic Growth 1928-1985’.  The year intervals he gives are slightly different: 1950-1960, 1960-1970. 1970-75, 1975-80, 1980-85.

These figures clearly show that Soviet growth was much superior in the Stalin era.  If we compare per-capita Stalin era growth in the 1937 prices with Soviet growth in the 1950s and 1960s, then Stalin era growth only seems slightly higher.  Its true superiority only emerges when the figures are calculated properly.

There needs to be some caution about the later figures.  The slow-down, especially after the 1960s, is probably exaggerated.  As I will show in a future article, the figures for the 1970s and 1980s should probably show per capita growth of just over 3%.  The most important reason for this is that the CIA underestimated Soviet defence spending in this period.  I also believe they somewhat underestimated the growth of consumer spending too.

The growth slow-down after the  Stalin-era, this is usually explained by the ‘extensive growth theory’.  See:

The Need for Planning and the Decline of the Soviet Economy

According to this rather speculative theory, high growth in the early Soviet period relied on the movement of labour from the villages to the towns where it could engage in more productive industrial labour with more advanced means of production.  The argument is that these additions of labour and capital were not accompanied by increases in factor productivity due to inherent inefficiencies in the socialist system.  As the movement from the countryside to the cities slowed due to the depletion of the rural population, growth would inevitably slow in a socialist economy as productivity gains would not make up for the loss of growth due to smaller additions to the industrial workforce.

This theory will be dealt with in a later article.  Empirical evidence against it has emerged in recent academic work too.  A simple answer to the extensive growth theory, however, is ‘East Germany’.  According to bourgeois figures, there was quite a dramatic economic growth slow-down here from the 1950s to 1989.

Angus Maddison’s figures for GDP growth in East Germany are:

1950-60     5.5%

1960-70     2.9%

1970-80     2.8%

1980-89     1.6%

Quoted in Jan Sleifer (2006) Planning Ahead and Falling Behind. Akademie Verlag, page 50.

There is no way this slow-down can be ascribed to an exhaustion of labour reserves.  East Germany was far more urbanised than most other Eastern bloc countries but it suffered exactly the same type of slow-down as the others. Much of the slow-down in Eastern Europe was due to progressive falls in investment in the post-war period.   In the USSR the issue is complicated by the existence of hidden defence spending alluded to above.

Growth slow-down was probably also exacerbated by botched economic reforms such as the introduction of pseudo-profit market prices and profit indicators that disorganised planning without bringing in true market mechanisms. Again, this needs to be examined in future work. However, the bourgeois account that economic growth in all of Eastern Europe slowed to a crawl by the 1980s due to the economic inefficiency of socialism is wrong about the growth rates and certainly wrong about the cause.

To return to Stalin’s’ USSR,  we can conclude by pointing out that that the comparison of growth in Stalin’s Soviet Union with the current figures for  China and India underestimates the Soviet achievement.  The figures for China and India are of the Laspeyres type.    India currently measures growth in the prices of 2011/12 and China rebases every five years.  It could be argued that a better comparison of Stalin-era growth with modern China and India might be the Soviet Laspeyres figure of 11.9% growth rather than the Fisher mean rate.  This would give a per capita growth rate of 9.7% much higher than the figures of 5% and 5.5% for India and China.  No greater example exists of the economic superiority of socialism when it is under the right leadership than the Soviet Union of the Stalin era.

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