ECONOMIC GROWTH

A Comparison of Soviet and U.S.
Economic Growth since 1950
by Berenise Lucero

"A large income is the best recipe for happiness I ever heard of."
Jane Austen

A country's total income is perhaps the most important variable used in measuring economic growth. Because the ultimate test for any economic system is its ability to grow and to provide increases in the standard of living, then, the use of Gross National Product (GNP), which is the total income of all residents of a nation, is a good tool for comparing economic growth across borders. It helps to answer questions like, how fast has the Soviet economy been growing in comparison to the United States? There is no doubt that both the former Soviet command economy and the U.S. market economy placed great emphasis on economic growth. And yet in the end, we see two diverging outcomes. One of long term decline and the other of relative stability.

Of all the aspects in which the economies of Soviet Union and the United States may be compared, national product comparisons probably provide the broadest and most comprehensive view. 1 Before such a comparison is made however, the proper measurement of economic growth requires agreement on definition, aggregation and a common unit of measure. 2 In terms of definition, both countries had two different ways of measuring changes in aggregate output. While the U.S. uses GNP or GDP, the Soviet output data was compiled using the concept of Net Material Product (NMP), which is the equivalent concept of output in Marxian terms. NMP was generally not computed on a value-added basis and thus exhibited double-counting. This is why sometimes Soviet statistics appear higher than U.S. statistics. In terms of aggregation, which is a composite measure of output requiring the use of prices, the two countries also had different ways of measuring output due to differing price determination. In the U.S. economy, prices were and generally are formed by supply and demand equilibrium, while prices in the Soviet Union were determined primarily by administrative decree, using accounting formulae, rather than by supply and demand. In international comparisons, conversion to a common currency is made through market exchange rates or calculated purchasing power exchange rates. However, since the Soviet Union used arbitrary exchange rates, it made exchange rates conversions almost impossible. Hence, data on economic growth in the Soviet Union are a variety of estimates that in total give us an understanding of magnitude and range. 2

TABLE 1 Gross National Product by Final use, USSR nd United States, 1955
  Prevailing Rubles Adjusted Rubles Dollars

   FINAL USE:

USSR
 
(bil)

U.S.
(bil.)

USSR
U.S.
 (%)

USSR  (bil)

U.S.
(bil.)

USSR
U.S.
 (%)

USSR
 
(bil)

U.S.
(bil.)

USSR
U.S.
 (%)

Consumption

761.7

3465.5

22.0

566.7

2537.7

22.3

99.1

269.14

36.8

Gov.Administr.

29.5

42.8

68.9

27.4

36.4

75.3

8.8

8.29

106.2

Defense

105.4

212.1

49.7

99.5

205.9

48.3

29.9

38.06

78.6

 Investment

246.6

628.7

39.2

238.1

605.6

39.3

43.0

84.07

51.1

GNP  

1143.2

4349.1

26.3

931.7

3385.6

27.5

180.8

399.56

45.2

Source:  Productivity and The Social System - The USSR and The West.  Bergson, Abram.  Harvard University Press.  1978 (page 49)

I chose to compare the gross national product between the Soviet Union and the U.S. since 1950. This period is more comprehensive of the conditions of economic competition between the two countries. By 1950, the Soviet Union had largely recovered from the aftermath of WWII, while the U.S. had completed its reconversion from the war. 1 Gross national product for both countries in 1955 is shown in Table 1. 3 The table is divided in a way that shows data for each country on its national income in terms of its own prices, and, in terms of the prices of the other country. Also, the gross national product identity is divided into four final-use categories: consumption, government administration, defense and investment. We can see from Table 1 that in 1955 the Soviet Union experienced higher GNP than the U.S. measured in both adjusted rubles and dollars. This positive outlook for the Soviet Union did not continue for too long. Just a few years later, in 1958, Soviet economic growth started to decline remarkably as shown in Table 2. 

TABLE 2 Comparative Growth Rates of GNP (Percentages)
 

 

1958

1959

1960

1961

1962

1963

1950-58

1958-63

USSR

8.5

4.2

4.9

6.8

4.3

2.6

7.0

4.5

  U.S.

-1.2

6.7

2.5

1.9

6.1

3.4

2.9

4.1

Source:  Soviet Economy.  Edited by Bornstein & Fusfeld. 
Richard D. Irwin, Inc. 1962 and 1966. (page 293)

Among the reasons for a decline in Soviet economic growth are adverse weather conditions in agriculture, smaller increments to the labor force, and smaller increase in labor productivity. 1 Looking at Table 2 once again, we see that since 1958 the Soviet Union has not matched the annual average growth rates it achieved from 1950-1958. In terms of U.S. comparisons, we can clearly see that since 1961 the Soviet Union has fallen behind the U.S. in its growth performance. This trend was also evident throughout the 1970's and 1980's as Table 3 indicates. 2 Table 3 shows the economic growth of Tsarist real GNP (1885-1913) and the growth of Soviet real GNP during the plan era (1928-1984) using both American estimates and official Soviet estimates. 

TABLE 3 Economic Growth in the USSR (annual rates of economic growth)

  USSR

American 
Estimates

Official Soviet 
Estimates

1885-1913

            3.3

                --

1928-1940

            5.4

             14.6

1950-1960

            6.0

             10.1

1960-1970

            5.1

              7.0

1970-1980

            3.7

              5.3

1980-1984

            2.0

              3.2

1984-1988

             --

              3.5

1928-1984

            4.3

              8.8

1950-1984

            4.4

              7.6

Sources:  Russian & Soviet Economic Performance & Structure.  Gregory, Paul & Stuart, Robert. 
 Addison Wesley Longman, Inc.  2001 (page 206). 
As originally published by A. Bergson, The Real National Income of Soviet Russia since 1928
(Cambridge, MA: Harvard University Press, 1961), 210.  et all.

Both estimates, although different, indicate the same pattern: Soviet rates of economic growth slowed considerably over time. Looking at Table 4, which shows economic growth in the U.S. between 1929-1984, we can compare the rates of growth between the two countries. For example, the Soviet rate of growth during the post war period (1950-1984) of 4.4 per cent exceeded the comparable American rate of 3.4 per cent for the same period. However, American rates of economic growth during the U.S. industrial revolution were closer to the Soviet rates of the early plan era.

 

TABLE 4 Economic Growth in the USA

    USA

1958 and 1972 prices

1929-1950

             2.5

1950-1960

             3.3

1960-1970

             3.9

1970-1984

             3.0

1929-1984

             3.1

1950-1984

             3.4

Sources:  Russian & Soviet Economic Performance & Structure.  Gregory, Paul & Stuart, Robert.  Addison Wesley Longman, Inc.  2001 (page 207).  As originally published by: The Economic Report of the President (selected years); R. Gallman, "Gross National Product in the Unites States, 1834-1909," Output, Employment, and Productivity in the United States after 1800 (New York: National Bureau of Economic Research, 1966), 26

The most striking difference between U.S. and Soviet economic growth is the long-term decline in the Soviet growth rates, while the relative stability of the U.S. growth rates. 2 We can see again from Table 3, that the first three decades of Soviet economic growth were rapid. Subsequently, each decade after that saw slower and slower growth. This disturbing decline on Soviet economic growth led to the decision of attempting reform, and it ultimately led to the abandonment of the administrative command economy.

References

  • 1. Soviet Economy. Edited by Bornstein & Fusfeld. Richard D. Irwin, Inc. 1962 and 1966.

  • 2. Russian & Soviet Economic Performance & Structure. Gregory, Paul & Stuart, Robert. Addison Wesley Longman, Inc. 2001

  • 3. Productivity and The Social System - The USSR and The West. Bergson, Abram. Harvard University Press. 1978

 

 

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