The Failed Economic Plan of 1931-1935



More than seventy years ago, Mongolia had just thrown off Chinese rule.  The nation had scarcely any industry and agriculture.  Herding livestock represented the country's only significant economic activity. To be sure, a few industries and some trade had existed in the pre-Communist era in Urga, the capital of Mongolia.  Import-export firms exported furs, hides, and other raw materials and imported finished products, mainly textiles and items for household use.  But practically every transaction with a foreign country was conducted by foreign merchants, most of whom were Russian.  What domestic trade existed was firmly in the hands of small Chinese business establishments.

Several factors had hindered the economic growth of Mongolia.  The peasants lived in a semifeudal relationship with the landowners.  The unproductive class of lamas who owned a large percentage of Mongolia's livestock was a drag on the economic life of the country.  The products of animal husbandry accounted for almost 90% of the national economy, and even products destined for export, mainly to China and Russia, were raw and unprocessed.  Transport was by pack animals, and modern types of transportation (such as horse-drawn carts) were seen only occasionally.  There were no roads except those connecting such well-developed settlements as Urga, Ulyassutai, and Kobdo with Kyakhta on the Russian border and Kalgan in China.(Petrov,71)

The turning point in industrial development did not come about until the early 1920's, when the country was taken over by its Communist leaders with the military assistance of the Soviet Union. In 1929-30, Stalin and his supporters initiated a major change in economic policy by instituting five-year planning and collectivization. He had come to accept the Soviet leftist viewpoint on industrialization, planning, and social change.  The major policy changes in the Mongolian People's Republic(MPR) mechanically reflected those effected in the Soviet Union. Soviet representatives in the MPR who directed the changes also did the detailed planning.  Thus, it is not worthless to take a look at the MPR's economic and social plan of 1931-1935 to see how the adoption of Soviet political and socioeconomic policies to the MPR turned out eventually.

According to the plan, the Mongols were to breed more livestock, more market output, and be initiated into new activities such as agriculture, haymaking, and crafts while they were being collectivized and converted to sedentary life.  The intent of the government was to incorporate the majority of Mongol families in collectives of one form or another by the end of plan.  75% of the poor Mongols(those owning less than 600 tugriks each) and 50% of the middle-class Mongols (those owning between 600 and 3,000 tugriks each) were destined for collectivization.  Calculated from data on property distribution among the social strata, these figures meant the collectivization of at least 55% of the population

 The projected increase of livestock which was to support the plan was from 17.6 to 25.0 million head.  Exports were to increase from 32.2 to 50.0 million tugriks, and imports, from 27.0 to 47.0 million.  The activities of  Montsenkoop, the state trading organization, were to be expanded to deal with all imported goods and 85% of retail turnover to city dwellers.  The number of state farms was to grow five of twenty-six, cultivating an area to be expanded from 3,500 to 355,000 dessiatines.  The total cultivable area was to expand to 500,000 dessiatines.  Transportation was to grow substantially in ton-miles of loads carried, and its capital budget was to be increased tenfold.  The least ambitious part was the industrial plan, which largely contemplated the expansion of the existing inadequate industrial facilities. Finally, the budget was to increase both in overall size and as a percentage share of the national income.

Massive Soviet economic assistance was offered to Mongolia almost at once, not for philanthropic reasons but because the soviet Union was determined to have a faithful satellite on its southern Siberian border.(Petrov, 74)  The Soviets confiscated all Russian commercial enterprises in Mongolia and transferred ownership of them to the new Mongolian state.  Economic and professional assistance was provided to start new industrial projects, such as the electric power plant in Ulan Bator and two leather-processing factories, but the main effort was concentrated on rebuilding and reconstructing existing industrial enterprises, such as the Nalaikha coal mine, that were either obsolete or whose output was not sufficient to meet the needs of the growing economy.

 Small industrial enterprises set up in 1930-31 included an engineering works in Ulan Bator, a sawmill on the river Yeroo, and an iron foundry, but large-scale assistance from the Soviet Union began in 1931 with the construction of large industrial installations, mainly in processing and energy-producing industries.  The Choybalsan industrial combine in Ulan Bator had its own power station, wool scouring mill and cloth factories, and produced foot wear, blankets, felts, leather coats, soap, and so on. 

The labor force grew.  The number of industrial workers increased from 1,409 in 1930 to 2,064 in 1935.  More than half of them were Mongols, whereas in 1927 only 26% of the entire industrial labor force had been natives of Mongolia.  The balance of the labor force was, as before, Russian and  Chinese (Petrov,74).

  In spite of the industrial projects completed with Soviet aid, the five-year plan was a failure, for it was highly unrealistic.  In the MPR, however, there was a willing proponent of Soviet goals to drive through the major policy of collectivization and settlement of the nomads, expropriation of the wealthy to endow the collectives with capital stock. 

Prime Minister Gendun gives a fairly full account of the effects of the "leftist adventurist" policy.  According to Gendun, the liquidation of private trade led to a goods famine.  In 1931 and 1932 the Mongols were in great need.  "Trade was essentially converted into supply," noted Gendun, "being conducted under the slogan 'take what is given.'  Montsenkoop did not command a very large share of the market in 1928.  Thus, the tasks assigned to it under the plan were quite beyond its capacities.(Murphy, 127)

Collectives formed for pack and load transport also failed to work efficiently.  The officers of Mongoltrans(the joint motor transport company which was set up in 1929) had thought that more emphasis should be placed on automotive transportation, a policy that led to collapse of transportation services.

In agriculture the plan had stressed self-sufficiency in cereals. As part of the ambitious target mentioned, six grain and three livestock state farms had actually been created, but all these farms accomplished was to involve the state in serious financial loss.  

Collectivization of the Outer Mongolian nomads did affect agricultural output, the investment plan, and the export plan.  At first, the export plan was met by confiscation of cattle.  As a policy, this measure was irresponsible, because it was equivalent to destruction of capital stock.  The import plan also failed, because the Soviet Union did not meet her commitments.

After conclusion of the Eighth Party Congress, an outright attack was launched on Buddhism and its institutions.  In 1931 and 1932 the property of 837 clerical and lay lords was expropriated.  At the same time, various types of collectives were formed.  In 1929 and 1930, 152 communes, 135 artels, and 122 collectives were instituted.  The Soviet Union of higher forms of socialist organization such as communes and artels were unsuitable to the Mongolian economy.  Monasteries were subjected to stepped-up tax rates.  A progressive war tax was levied with lamas in mind.(Murphy, 125)

 The year 1929 to 1932 witnessed a severe inflation, causing loss of confidence in the tugrik.  The goods famine, then, may be explained in part by the flight to goods typical of galloping inflation.  The source of the inflation was overissue of paper money.  Much of the ambitious plan had been financed by government note issue and by lending from Mongolbank.

 It is possible to gain further insights into the situation from the orthodox articles published in the journal Khoziaistvo Mongolii.  Mongols who settled in the towns and engaged in sedentary work were usually marginal workers.  These inefficient workers crowed into collectives to get their share of expropriated cattle; needless to say, they contributed to the failure of the collectives.

Mass disaffection in Outer Mongoli a was thus likely to hand the Japanese authorities a good excuse to come to the Mongols' aid and to advance Japanese influence to the Altai.  Pro-Japanese Mongols were eager for such a move.  It was the Japanese threat which called a halt to the leftist policy.

Stalin personally intervened to ensure that the "Left-wing adventures" of Mongolia were evicted from the Mongolian government.  The socioeconomic plan was dropped, collectivization and the creation of state farms were forgotten, worker cooperatives were abandoned, the monopolies on domestic trade and transport were relaxed, the assault on the church was modified, and the oppressive tax on cattle was reduced.  Only the foreign-trade monopoly was retained without change.

Gendun admits that the Mongolian Army and the Mongolian secret police had to be called upon to put down the uprisings.  Thus the plans made for Mongolia with Soviet advice and implemented with Soviet help led to conditions as bad as, if not worse than, those that had emerged in the Central Asian union republics of the USSR during her first five year plan.

Although unrecognized at the time, there were dangers in the plan.  To begin with, collectivization of the nomads would inevitably affect the level and the marketing of agriculture output.  This might be only a short-term problem, but meanwhile any Mongolian economic activity that was projected to grow out of the real savings from the planned given levels of income in the agriculture sector would suffer when it came to financing in real terms.  A less important consideration was that new industry would sensitively reflect fluctuations in its material input.  In addition, the export plan depended on the rate of  collectivization. If the export plan failed, so would the import plan. (Murphy, 123) 

Furthermore, there was a special aspect to the Mongolian economic system: its widespread reliance on nomadic stock raising. It seems evident that Soviet experts who planned Mongolian affairs gave no special thought to Mongolian problems; they merely applied to the MPR policies that were then being implemented in the Soviet Union.

Overall, the five-year plan in 1931-35 was an erroneous policy that did not take account of Mongolia's situation and Mongolians' needs.  In addition, Mongolia and its people were not ready for the quite drastic economic change.  The population was almost totally illiterate, and there was an almost total lack of knowledge of planning statistics: there was also no experience with yearly plans, and no framework to implement such plans.


Murphy, George. soviet Mongolia, University of California Press,1966.




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