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Excerpts from:
Slouching Towards Utopia?: The Economic History of the Twentieth Century -XV. Nazis and Soviets-

J. Bradford DeLong
University of California at Berkeley and NBER,
February 1997

The Soviet Union: The New Economic Policy

It was not foreordained that the Soviet Union would turn into a terror-ridden prison camp. There were strong signs of impending disaster under Lenin: the promotion of the secret police-first called the Cheka, then the OGPU, then the NKVD, and at its end the KGB-to a prominent place. The use of unselective terror to dominate regions during the Russian Civil War. The suppression of discussion and debate within the Communist Party.

But Lenin--ever the pragmatist--had taken a number of steps backward from the central command-driven, terror-using, Communism-now-at-all-costs policies of the Civil War. "War Communism" had been replaced by a "New Economic Policy" placing less emphasis on the elimination of the business class and more emphasis on boosting production to make up for the losses of World War I and the Civil War.

"War Communism" was Lenin's attempt to achieve both the degree of military mobilization of the economy that he believed World War I-era Germany had obtained, and to accomplish the goals of nationalization and income equalization to which he and his Communists were strongly committed. It took place against the desperate background of the Russian Civil War. The first economic consequence was inflation, ending in a 1924 reform of the currency that exchanged fifty million "old" rubles for one "new" ruble. The second economic consequence of War Communism was complete nationalization: all factories were nationalized. All credit institutions were nationalized. International trade was nationalized. All wages were equalized. Instead of employers hiring workers, party functionaries conscripted them.

In agriculture War Communism was a disaster--the first of many agricultural disasters. The do-it-yourself redistribution of land that the peasants accomplished and the Bolshevik Party blessed was very popular. But the government needed food for the towns--and peasant farmers living in the countryside were much less interested in delivering grain in exchange for urban luxuries than had been noble landlords under the Czar.

The government tried to requisition the food it needed for the cities. The peasants hid the grain they had, and cut back on production because they thought that any excess above their own subsistence would be confiscated. Urban workers, short of food, returned to their relatives' family farms in the countryside, where they at least thought that they could get fed. Industrial output fell.

In 1920 agricultural output was perhaps half of what it had been in 1913. And industrial output was perhaps one fifth of what it had been in 1913.

Nikolai Bukharin--one of the big losers in the succession struggle following Lenin's death (he was in the end shot in the late 1930s) and the model for Arthur Koestler's protagonist, Rubashov, in the novel Darkness at Noon--saw the New Economic Policy [NEP] as desirable for perhaps generations: let the Soviet Union build up its productive power and improve its living standards; let progressive income taxes keep the successful entrepreneurs of the NEP--the so-called NEPmen--from getting too rich; slowly build up the backbone of the economy in the form of state-owned and -operated dams, railroads, utilities, and heavy industrial plants; and then at sometime in the relatively distant future attempt to move beyond a market economy in which goods were distributed "to each according to his work" to a Communist economy in which goods would be distributed "to each according to his need."

The New Economic Policy of Lenin restored private enterprise to the distribution sector. Heavy industrial production remained nationalized. Artisans, and small light industry factories, could work on their own account. But distribution was privatized: private traders bought output from state factories, transported it, and then delievered it to private stores that sold it to consumers. Peasants sold grain to private traders as well-and taxes in money replaced the previous requisitions of surplus.

By 1926 Russian industrial production was back to the level of 1913.

The Soviet Union: Stalin and "National Bolshevism"

The dictator who won the struggle for power after Lenin's death--Josef Stalin, born Josef Vissarionovich Djugashvili--was a paranoid psychopath: the lead candidate for the greatest mass-murderer in human history. His bureaucratic triumph over first the left and then the right opposition within the Soviet Communist Party in the late 1920s left him as the unchallenged dictator of the Soviet Union, surrounded by supporters, clients, and yes-men.

Stalin had been born in what would become the Soviet Republic of Georgia, and ventured into revolutionary-politics-with-banditry after being expelled from an Orthodox seminary He was arrested and exiled to Siberia four times; he escaped four times, suspiciously quickly. Trotsky and others thought that Stalin had spent his time before World War I as an agent provocateur, a spy on the Communists for the Okhrana, the Czar's secret political police.

In 1912 Lenin needed somebody from one of the ethnic minorities of the Russian Empire to stir up agitation at the fringes of the Empire. He chose Stalin. In 1917 Stalin was the first major Bolshevik to return to the then-capital--St. Petersburg or Petrograd--after the fall of the Czar. Lenin gave Stalin the post of editor of the party newspaper, Pravda. During the Civil War he was Commissar for Nationalities--responsible for trying to cement the revolution among the ethnic minorities at the fringes of the Russian Empire. Lenin named him "General Secretary"--responsible for personnel and other bureaucratic matters--of the Communist Party after the Civil War. And Stalin used his post to promote his friends, scatter his opponents, and build up a large faction of clients in the party.

Trotsky thought that Stalin poisoned Lenin.

After Lenin's death, Stalin outmaneuvered his political rivals one by one, allying with one group to expel another from the party before turning on his former allies. Upon Lenin's death the rulers of the Communist Party--the Politburo--established an uneasy truce of "collective leadership." But Trotsky appeared first among equals: Lenin's right hand during the Bolshevik Revolution and the leader of the victorious Red Army. So the other party barons Zinoviev and Kmenev united with Stalin against Trotsky. At the Thirteenth Parthy Congress in 1924 Trotsky's advocacy of rapid industrialization at home and continuous attempts to spark more revolutions abroad was condemned as a "Left" deviation. Trotsky lost his share of power.

Within a year Zinoviev and Kamenev were scared of Stalin--and realized that on the substance of rapid industrialization they agreed with Trotsky. Their "Left Opposition" was condemned by the Party Congress at the end of 1925: Stalin's control of personnel was a more powerful weapon than they had realized. Before 1917 the party had been an underground conspiracy of hunted revolutionaires. In 1917 the hunted revolutionaries emerged above ground after the overthrow of the Czar, and the Communist Party became a more normal political party: a large number of voters and allies among the public following the lead of the party officials. During the Civil War the Communist Party beame a coalition to fight the war. And after the war it became a bureaucracy.

Recruitment drives brought the party membership up to one million in 1929, with the new members selected and screened by the party. The General Secretary--Stalin--was responsible for recruitment, promotion, and personnel, an onerous task that he had agreed to assume at Lenin's plea. The General Secretary appointed the secretaries of subordinate local committees. The local secretaries would appoint those who screened incoming members. And the local secretaries would choose the delegates to the Communist Party Congresses--who would then do as their patron's patron Stalin suggested.

By 1927 Zinoviev and Kamenev were expelled from the Communist Party.

Two years later Stalin turned on his allies--Bukharin, Rykov, and Tomskii--who had helped him expel Kamenev, Zinoviev, and Trotsky. Bukharin and company were a "Right Deviation" that wanted to restore captialism. Thus by the end of the 1920s all of the rest of Lenin's lieutenants--Kamenev, Zinoviev, Bukharin, and Trotsky--were powerless. They were dead by the end of the 1930s.

After the end of the Russian Civil War, Lenin had taken several steps back away from the planned, centralized, and militarized economy. His "New Economic Policy" allowed the return of entrepreneurs, merchants, and middlemen--the so called "NEPmen." It encouraged the growth of a class of relatively rich peasants--the "kulaks"--to produce the agricultural surplus needed to feed the cities. Forced confiscations of grain were replaced by a proportional tax, and peasants received the right to sell their surplus on the market. Lenin exhorted the Party to learn khozraschet--in Martin Malia's translation, "profit and loss business methods."

The Russian economy recovered relatively quickly under the New Economic Policy. Martin Malia believes that ordinary Russians had a higher standard of living in the mid-1920s than at any time since

the superior living standard of the NEP is eminently plausible with respect to the obvious availability in the earlier years [of NEP] of food, of consumer goods that people actually wanted, and of personal freedom..

As far as material wealth is concerned, Malia is almost surely wrong. Soviet households of the 1980s had radios, and apartments with some consumer appliances rather than cottages with straw floors. But the gain in material living standards was not nearly as much as it should have been. Traditionally-measured real wages in 1952 appear no higher than in 1929, when they were about at the level of 1913; and Soviet urban consumers saw few of the new inventions that enriched consumer choice elsewhere. The grain harvest of 1952 was less than that of 1929, which was less than that of 1913.

But NEP did little to equip the Soviet Union to defend itself against attack from abroad. And it did nothing to advance Communist ideals. It is possible to envision a different Soviet Union, in which other leaders had won the succession struggle after Lenin's death, which would have seen economic policy evolve very differently: an extension of the NEP coupled with an ever-postponed long-run plan to resume nationalization, arriving in the end at something like post-World War II Sweden as far as economic organization is concerned.

It is unlikely: practically all of the Bolsheviks who made the Russian Revolution would have been opposed to such an evolution, at least at first. And to all in the Communist Party, the increasing wealth of the NEPmen, the traders and distributors who had prospered under the New Economic Policy, was offensive: they toiled not, neither did they spin; all they did was carry things from place to place; and Communists saw no creation of economic value in distribution; so their profits were pure exploitation of the people, and the Party, by bloodsucking parasites. NEP could not last. To the Bolshevik cadre, NEP was a betrayal of the dream of socialism. When Stalin began his industrialization drive, all elements of the Party--in power or not, expelled or not, exiled or not--rallied to him in support of his policies (if not his rule).

Moreover, as Alec Nove has pointed out, national security considerations required an emphasis on building up those industries necessary to boost military might and maintain economic independence; steel, coal, and heavy machinery--not consumer goods. But how are you to persuade the peasants to boost agricultural production if you have no factory-made consumer goods to trade them for their grain?

So from the perspective of the Communist Party the problem of agricultural economics was how to extract as much as possible in the way of food from the countryside while giving up as little as possible, in the sense of the share of manufacturing production devoted to producing consumer goods for rural localities, as possible. In the latter stages of the NEP the government raised industrial prices and lowered farm prices--using "the scissors" to improve the government's terms-of-trade vis-a-vis the farmers. This had the expected result: the farmers did not want to sell grain to the cities at the prices the government was willing to pay.

The "goods famine" generated by the start of the first Five Year Plan and the shift of urban production from consumer goods to capital goods, and from light industry to heavy industry, called forth a "grain famine." Peasants shifted to growing industrial crops--cotton and flax--and to raising livestock rather than grain that the could not sell to the state at a reasonable price.

In 1929 urban rationing was reintroduced. The NEP had failed from the government's point of view: the peasants were not willing to deliver to the state the grain that the government wanted at the price that the government wanted to pay.

Thus the government decided that it would have to do something about the "kulak," the relatively rich peasant who was producing a surplus of agricultural products and yet unwilling to deliver it up to the party. Note that a "kulak" was not a landlord; a "kulak" was merely a peasant who had enough land and money to hire a farmhand. The poorest group of peasants were not sources but net purchasers of food, earning from handwork and handicrafts enough to bring their food consumption up from starvation levels. The so-called "middle" peasants were in rough balance, eating what they produced.

Only the "kulaks" produced a surplus.

Marx had claimed--wrongly--that the British industrial revolution had accumulated the capital to build the factories by expropriating the property of the peasants. The "enclosure" movement, Marx claimed, had deprived the peasants of their common property and their land, had turned them into a property-less industrial proletariat, and had concentrated the wealth that the rich then used to invest in factories.

Marx was wrong. The enclosure movement in Britain was not a win-win event: the politically powerful who could reach and influence Parliament did very well indeed. But the industrial working class of nineteenth century Britain was a consequence of population growth: there was no rural depopulation in Britain until the end of the nineteenth century, well after the industrial revolution took hold, when farm workers were pulled into the cities by higher urban wages. And factories were financed by merchants and entrepreneurs on shoestrings, not by landlords fattened by the profits of enclosure: landlords fattened by the profits of enclosure kept their wealth in land or loaned in to the governments that fought the wars that made the B

ritish Empire.

But by the end of the 1920s the Communists--not just Stalin, but Trotsky and such figures as Preobrazhensky too--had reached the conclusion that the Soviet Union needed to do what Marx told them the British business class had done two centuries before: "primitive accumulation." Confiscate the land and animals of the kulaks, the Party decided. Bring them into collective farms, along with the poor and middle peasants. Tighten down their standard of living to a little bit more than what the non-kulak average had been beforehand. The middle peasants and the poor peasants will be happy, the Party thought. Only the kulaks will be upset--and their resistance can be handled. Thereafter the entire agricultural surplus can be taken for the cities, with no need to supply the countryside with any consumer goods at all.

John Maynard Keynes wrote that:

The ideas of economists and political philosophers... are more powerful than is commonly understood... the world is ruled by little else. Practical men... believ[ing] themselves... exempt from any intellectual influences, are usually the slaves of some defunct economist. Madmen in authority, hearing voices in the air, are distilling their frenzy from some academic scribbler...

We have seen this in Hitler: driven to conquer Poland, Czechoslovakia, and Russia by his hearing the voices in the air of the economist Thomas Malthus (along with the racist philosopher Houston Stewart Chamberlain, and the social Darwinist sociologist Herbert Spencer). We have seen this in Lenin, driven to try to destroy the market as a social mechanism by the voices in the air of Marx and Engels. And now we see this in Stalin and his peers, driven to kill and exile fifteen million peasants because Marx had once written five chapters on the "so-called primitive accumulation" of capital in pre-industrial Britain.

Beginning in 1929, Stalin decreed the collectivization of agriculture. Some ninety-four percent of the Soviet Union's's twenty-five million peasant households were gathered into state- and collective farms, averaging some fifty peasants per farm. Peasants were shot, died of famine, and were exiled to Siberian prison labor camps in the millions during the 1930s. Perhaps fifteen million died. Agricultural production dropped by a third. The number of farm animals in the Soviet Union dropped by half.

Certainly the entire surplus was taken, with little or anything being traded back from the cities to the countryside. But resistance was not confined to the kulaks. Peasants everywhere slaughtered and ate their animals, rather than submit calmly to their collectivization.

It is not likely that there were any benefits to the collectivization of agriculture. Food for the cities could have been obtained--more food on better terms--by devoting a share of urban industrial production to consumer goods useful for farmers. The underlying idea of collectivization was the re-enserfment of the peasantry: reduce their standard of living to the bare minimum, take the surplus, and use the surplus to feed the urban workers. But serfdom is not a very efficient way of squeezing food out of the countryside. More efficient to have kept the farm animals and the fifteen million people alive and traded consumer goods for the food to feed the cities.

The other side of Stalin's economic policy was rapid industrialization. After having condemned his political opponents as unrealistic "super-industrializers," Stalin announced a Five-Year Plan that exceeded even their hopes. During the First and Second Five-Year Plans Soviet statisticians claimed that industrial production--which had stood 11% above its 1913 level in 1928--was some 181 percent higher by 1933, and some 558 percent higher than 1913 by 1938. Heavy industry had the highest priority: coal, steel, chemicals, and electricity. Consumer goods were to come later, if at all.

The "Plan" was not an overall, integrated, achievable strategy for industrial development--what we would call a plan. Instead, it rapidly became a series of selected objectives--finish this dam, build so many blast furnaces, open so many coal mines--to be achieved whatever the cost. When in the mid-1960s Fidel Castro decreed that Cuba was to make a ten-million ton sugar harvest, nearly twice its normal production, and that everything else was to be subordinated to that goal, he was acting in the spirit of Stalin's Five Year Plans.

The aim was to build up heavy metallurgy. The task was to acquire--buying from abroad or making at home--the technology that American heavy industry deployed. A "steel city" was to be built in the Urals, at Magnitogorsk, and supplied with coal from the Chinese border. (And without Magnitogorsk it is hard to see how Stalin could have won World War II, or the factories of western Russia were under German occupation from July 1941 until late in 1943). Dams, automobile factories, tractor (or tank) factories--all located not near the border or where the people were but far to the east of Moscow. General Motors, Ford, and Caterpillar were eager to contribute engineering expertise for a price.

How to get workers to man the new heavy industrial plants--especially since Stalin couldn't pay them much: consumer goods were impossible to find with the shift to heavy industry, and agricultural production was in shambles. The answer was by drafting the population: internal passports destroyed freedom of movement, housing and ration books depended on keeping your job (and thus satisfying your employer), and there was always the threat of Siberian exile in a concentration camp or a bullet in the neck for those whose bosses accused them of "sabotage." Nonfulfillment of quotas led to arrest and imprisonment or execution. In 1932 the government empowered local authorities to dismiss workers and deprive them of their food ration cards and housing for one day's absenteeism. Unemployment was eliminated: if you were unemployed, you might as well be sent to a labor camp.

At the start of the industrialization drive, there were show trials of engineers (accused of being "plan-wreckers"). Squeezing down the rural standard of living further produced a mass exodus: bad and low-paid as the cities were, for an adult male being a semi-serf on the collective farm was worse. More than twenty-five million people moved to the cities and the factories during the 1930s.

On the one hand, the Soviet Union did outproduce Germany and Britain in war weapons during World War II--and many of the weapons were of excellent quality. On the other hand, the claims of nearly sevenfold growth in industrial production from 1913 to 1940 were significantly exaggerated: cut reported industrial production in 1940 in half relative to 1913 to get a better indication of Soviet industrial production growth: perhaps industrial production in 1940 was (measured using standard techniques) 3.5 times industrial production in 1913 (although, once again, Russia was making new goods and new types of goods that it could not have made in 1913). But by the end of the Second Five Year Plan Russia had a strong industrial base, with a greatly increased capacity to produce coal, steel, iron, electricity, airplanes, tractors (and tanks), and locomotives. As best as Bergson could estimate, Soviet real national product grew at some 4.5 percent per year on average from 1928 to 1958.

Factory workers were shot or exiled to Siberian labor camps for failing to meet production targets assigned from above. Intellectuals were shot or exiled to Siberian labor camps for being insufficiently pro-Stalin, or for being in favor of the policies that Stalin had advocated last year and being too slow to switch. Communist activists, bureaucrats, and secret policemen fared no better. More than five million government officials and party members were killed or exiled in the Great Purge of the 1930s as well. All of Stalin's one-time peers as Lenin's lieutenants were gone by the late 1930s--save for Leon Trotsky, in exile in Mexico, who survived until one of Stalin's agents put an icepick through his head in 1940.

Curiously enough, the most dangerous place to be in Russia in the 1930s was among the high cadres of the Communist Party. Of the 1800 delegates to the Communist Party Congress of 1934, less than one in ten were delegates to the Party Congress of 1939. The rest were dead, in prison, or in Siberian exile. The most prominent generals of the Red Army were shot as well. The Communist Party at the start of World War II was more than half made up of those recruited in the late 1930s, and keenly aware that they owed their jobs and their status in Soviet society to Stalin, Stalin's protegees, and Stalin's protegees' protegees.

We really do not know how many people died at the hands of the Communist regime in Russia. We do know that the Siberian concentration camps were filled by the millions at least five times. The Gulag Archipelago grew to encompass millions with the deportation of the "kulaks" during the collectivization of agriculture. It was filled again by the purges of the late 1930s. It was filled yet again by Poles, Lithuanians, Estonians, Latvians, and Moldavians when the Soviet Union annexed those territories on the eve of World War II. Soldiers being disciplined, those critical of Stalin's wartime leadership, and ethnic groups thought to be pro-German were deported during World War II. After World War II perhaps four million Soviet soldiers who had been captured by the Germans and survived Hitler were sent to the Gulag until they rotted and died.

The entire system would not be shut down until the late 1950s, when Nikita Krushchev was General Secretary.

As Basil Kerblay write in his Modern Soviet Society, we know more about how many cows and sheep died in the 1930s than about how many of Stalin's opponents, imagined enemies, and bystanders were killed. R.J. Rummel estimates 62 million dead from the Soviet regime. Other estimates tend to be somewhat but not orders of magnitude lower.

The reality of the Soviet Union in the 1930s was in strong contrast to the image that many outside had of it. Outsiders focused on three things. First, the Soviet Union had eliminated unemployment--in a decade in which unemployment was bitter and pervasive outside of Russia. Second, Soviet production was expanding rapidly--in a decade in which production stagnated elsewhere in the world. Third, shortcomings in the Soviet Union could be blamed on the past: the country's backwardness, the heritage of the Czars, the necessity of doing everything as fast as possible to strengthen the country and catchup to the advanced industrial powers. "You can't make an omelette without breaking  eggas.

Yet it exerted a definite attraction on leftists and non-leftists alike. An effete intellectual upper-class snob like John Maynard Keynes--at the heart of the High British Decadence of the Bloomsbury group--had many reasons to dislike Leninism and the Soviet Union. As he wrote:

For me, brought up in a free air... Red Russia holds too much which is detestable. Comfort and habits let us be ready to forgo, but I am not ready for a creed that does not care how much it destroys the liberty and security of everyday life, which uses deliberately the weapons of persecution, destruction, and intenational strife... spending millions to suborn spies in every group and family at home.... How can I acept a doctrine which sets up as its bible, above and beyond criticism, an obsolete econmic textbook [Marx's Capital] which I know to be not only scientifically erroneous but without interest or application for the modern world? How can I adopt a creed which, preferring the mud above the fish, exalts the boorish proletariat above the bourgeois and the intelligentsia who... are the quality of life and surely carry the seeds of all human advanement? Even if we need a [new] religion, how can we find it in the turbid rubbish of the Red bookshops?

Yet even he wrote:

Now that the [Bolshevik Revolution] is done and there is no chance of going back, I should like to give Russia her chance; to help and not to hinder. For how much rather... if I were a Russian, would I contribute my quota of activity to Soviet Russia than to Tsarist Russia!... I should detest the actions of the new tyrants....But I should feel that my eyes were turned towards, and no longer away from, the possibilities of things...

The writer Lincoln Steffens ruined his reputation with the bon mot, on his return from Stalin's Russia: "I have seen the future, and it works." Yet even John Maynard Keynes is prepared to say that Soviet Russia may have some germ of the future in it, and may work.

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