Soviet Style Economics Was Insane and Here’s Why

Summary

This script explores the rise and fall of the Soviet economy, from its opulent 1920s growth to the Great Depression resilience, and the subsequent stagnation under Stalin's command economy. It delves into the inefficiencies of a centrally planned system, lack of incentives, and innovation, culminating in the Soviet Union's collapse due to unsustainable economic practices and resistance to change by the ruling elite.

Takeaways

• 📈 The 1920s were a period of economic boom, particularly in the US, driven by industrial growth and mass production, which saw a 42% increase in the US economy from 1920 to 1929.
• 💔 The global economy suffered a massive downturn with the Market Crash of 1929 and the subsequent Great Depression, leading to a 47% drop in US industrial production and soaring unemployment rates.
• 🏭 The Soviet Union was uniquely positioned to thrive during the Great Depression due to its isolation from global banking and trade, and its ability to maintain industrial output growth and near-zero unemployment.
• 🔄 The Soviet Union's economic success drew praise from some Western economists, who contrasted its performance with the struggling capitalist economies and even suggested the superiority of communism.
• 🌏 The Soviet Union's rapid ascent to superpower status within 40 years was remarkable, transforming from an impoverished monarchy to a leader in technology and military might.
• 🏛 The roots of the Soviet economy can be traced back to the 14th century, with the feudal system and serfdom setting the stage for economic and political structures that would persist for centuries.
• ⚔️ The Black Death in 1346 significantly disrupted the feudal system by creating a labor shortage that increased the bargaining power of peasants, leading to changes in Western Europe but not in the East.
• 🛠️ The Industrial Revolution, which began in the 18th century, was a turning point for Western economies but faced resistance in Eastern Europe, including Russia, due to fears of creative destruction.
• 🛑 The Russian Empire's resistance to industrialization and the oppressive conditions of its citizens led to widespread discontent and, eventually, revolution, culminating in the abdication of Tsar Nicholas II.
• 🔄 The Bolsheviks, under Lenin and later Stalin, implemented War Communism and later the New Economic Policy (NEP), which saw mixed results and set the stage for the highly centralized economic planning of the Soviet Union.
• 📉 The Soviet economic system was characterized by a lack of incentives for workers, inefficiencies in planning and production, and a stifling of innovation, which ultimately contributed to its collapse.

Q & A

What was the economic situation like during the Roaring 20’s?

The Roaring 20’s was a decade of economic boom in almost every major economy, characterized by opulence, opportunity, and hope for the future. The US economy, in particular, grew by 42% from 1920 to 1929, driven by mass production and the introduction of electricity.

How did the end of World War 1 impact the global economy?

The end of World War 1 in 1917 supercharged the global economy, with the US leading in industrial growth and contributing to almost half of the world's total output.

What was the impact of the Market crash of 1929 on the US economy?

The Market crash of 1929 led to the Great Depression, causing US industrial production to plummet by 47% and unemployment to soar to 20%, effectively erasing the growth of the previous decade.

Why was the Soviet Union the only major economy to thrive during the Great Depression?

The Soviet Union thrived during the Great Depression because it was largely cut off from global economic banking and trade, and was not subject to demand shocks. Its economy increased its total industrial output by 50% between 1929 and 1934 while maintaining effectively zero unemployment.

How did the Soviet Union's economic system differ from Western capitalism during the early 20th century?

The Soviet Union operated under a communist system where the state controlled all aspects of the economy, leading some Western economists to praise its system and even claim its superiority over Western capitalism during the Great Depression.

What were the origins of the extractive economic and political systems in Russia?

The origins of Russia's extractive systems can be traced back to the 14th century with the feudal system, where a king owned all land and distributed it to lords in exchange for military service, leading to serfdom and exploitation of the peasantry.

How did the bubonic plague, or Black Death, affect the feudal system in Europe?

The bubonic plague led to a massive loss of life, particularly among the peasant population, which in turn increased the value of peasant labor and their bargaining power, eventually leading to the near abolishment of unpaid labor and improved living conditions for peasants in Western Europe.

What was the difference in economic development between Western and Eastern Europe after the Black Death?

Western Europe experienced a more inclusive labor market and economic development, while Eastern Europe, including Russia, maintained a more extractive system with increased control over peasants and less freedom, leading to a significant divide in wealth and power.

Why did the Russian Empire resist industrialization during the 18th and 19th centuries?

The Russian Empire resisted industrialization because the Tsar and the elite class feared the creative destruction it would bring, potentially leading to the rise of a middle class that could challenge their power and control.

What were the consequences of the Soviet Union's 'War Communism' policy during the Civil War?

War Communism led to the nationalization of all industries and the seizure of food and grain from peasants to support the Red Army, which resulted in dramatically reduced agricultural output and negative public opinion, ultimately leading to the introduction of the New Economic Policy (NEP).

How did the Soviet Union's first Five Year Plan differ from the New Economic Policy?

The first Five Year Plan re-nationalized all production and was a top-down approach to rapidly grow heavy industry, in contrast to the NEP, which allowed for private agriculture and small businesses to stabilize the food supply and recover from economic collapse.

What were the main issues with the Soviet economic system that hindered its long-term growth?

The main issues included a lack of incentives for workers, limited information for effective planning, inefficiencies due to enterprise managers' focus on meeting targets rather than cost-effectiveness, and a lack of innovation due to the absence of property rights and fear of repercussions.

Why did the Soviet Union's economy eventually collapse?

The Soviet economy collapsed due to unsustainable growth, inefficiencies, lack of innovation, and the inability to adapt to changing economic conditions. The system was also burdened by a tyrannical government focused on self-preservation rather than the welfare of its citizens.