A Brief History of the Soviet Economy - Part 1

Building ‘Real Socialism’ - The experiment with alternatives, except for the right one

This is the start of a three-part series exploring the history of the Soviet economy and its modern revival, by Aymen Aulaiwi.

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Part 1 – The experiment with alternatives, except for the right one

Introduction

We are all very familiar with the well-trodden trope of the Leftist commentator stating that ‘the Soviet Union was not real socialism.’ It is a caricature just as persistent and real as that of the neo-liberal commentator posing the rhetorical question: ‘name me one country where socialism has worked.’ For anyone seeking evidence of this cultural phenomenon, I would direct their attention to the socialism workstream of the IEA’s Kristian Niemietz, especially his book Socialism: The Failed Idea That Never Dies. Evidently, the socialist Left has still not learned their history lesson, and what’s even worse, is their opponents still seem incapable of combating their historical revisionism.

From veteran leftist intellectuals like Noam Chomsky to modern commentators such as Hasan Piker, Owen Jones, Ash Sarkar and Grace Blakeley, today’s self-described socialists have become adept at dismissing references to the Soviet Union (or any other state that claimed to be socialist) as merely an example of malicious and warped “state socialism,” rather than the “real socialism” they aspire toward. Yet while they offer some critiques of the authoritarian and bureaucratic elements of the Soviet Union and People’s Republic of China, they are also quick to mention the “impressive industrialisation” and “large improvements in living standards” undertaken by these regimes. (Accomplishments surpassed by capitalist economies with considerably less inefficiency and bloodshed.) All in all, one could summarise their statements as: ‘the Soviet Union was not real socialism, but to the extent that it was, it was good.’

Distinguished Professor of English literature Terry Eagleton beautifully illustrates this viewpoint in his popular 2011 book, Why Marx Was Right. He states that despite all the horrific ‘human cost’ that came with the foundation of the Soviet Union and Communist China, ‘the so-called socialist system had its achievements, too,’ with both countries having ‘dragged their citizens out of economic backwardness into the modern industrial world,’ even if they did so kicking and screaming. Moreover, he praises the ‘cheap housing, fuel, transport’ and ‘impressive social services’ delivered by the socialist states of Eastern Europe, an especially easy task if one ignores the mass shortages and low quality of those provisions. And let us not forget the real prize of those societies – the ‘incomparably greater degree of equality’ – even if that meant equality in the numbers of family members lost to hunger and state-sanctioned violence.

That said, Professor Eagleton does caveat his comments by stating that he still mourns the absence of ‘freedom, democracy, and vegetables in the shop’ in those “so-called socialist” societies (Eagleton, 2011: pp.13-14).

Given this contradictory tactic employed by the modern Left, namely distancing themselves from past socialist regimes while simultaneously praising those regimes’ supposed achievements, it is evident that a new approach is needed to combat their historical revisionism. Rather than just reiterating the extensive list of socialist state failures, those who oppose socialism should offer an intensive, detailed history of specific socialist societies, showing how they were indeed rooted in socialist ideals, and how their failures were linked to those ideals – they were a feature, not a bug. This is precisely what this article series aims to achieve by providing a detailed, yet brief, economic history of the Soviet Union.

More specifically, this three-part series has two primary goals. First, it aims to show that many of the economic policies and structures put in place by the Soviet Union were indeed rooted in Marxist principles. Most of the so-called “aberrations” from those principles, particularly those of the Stalinist period, derived either from the need to accommodate for the realities on the ground or, in fact, attempts to provide “amnesty” for the people on the long and arduous road to communism. Hence, I have labelled this series Building ‘Real Socialism,’ echoing the ideological slogan – ‘actually existing socialism’ – promoted by the Brezhnev administration to describe the society forged by the Soviet state by the 1970s. This slogan directly acknowledged that, while they were unable to achieve the socialist utopia promised by Marx, they built the closest and most realistic socialist society they could create and, most likely, what modern socialists could create today.

Second, the series seeks to equip readers with the tools to recognise the disastrous economic policies adopted by the Soviet Union, some which still have their advocates today. The economic history of the Soviet Union offers a plethora of cautionary tales about how state industrial policy, expropriation of property owners, and the confluence of easy money, but especially anti-market policies, can inflict severe hardship on populations worldwide. Hence, this series provides not only a brief history of the Soviet economy, but also a look at its modern revival and why it must be stopped.

The October Revolution à la Marx

Probably the strongest argument brought forward by the modern socialist Left today about the October Revolution is that it should never have happened in the first place. Hallelujah! They must have learnt their lesson, right?

Unfortunately not. Their opposition to the revolution ultimately stems from Marxist theory, namely Marx’s belief that history progresses through natural stages of evolution from one epoch to another. As a result, Marx argued that a socialist society could only emerge after capitalism had fully run its course. For Marx, this made nineteenth-century Britain and Germany ideal candidates for socialist revolution, only to be thwarted by the fact that capitalism did not, in fact, end with the invention of the power loom and continues to innovate to this day.

So, when Lenin launched the socialist revolution in the relatively backward Russian Empire, it was not immediately clear how this aligned with Marxist doctrine. Once again, as Eagleton (2011: p.16) notes, ‘Marx himself never imagined that socialism could be achieved in impoverished conditions.’ (I guess that rules out Britain today.)

However, Marx was, of course, never that clear or decisive – he was a German intellectual after all. In his correspondence with Russian revolutionaries such as Georgie Plekhanov and Vera Zasulich, Marx, not wanting to dissuade his followers from violent uprising, suggested that Russia could leap toward socialism in one fell swoop. The primary reason for this claim was that the socialist revolution was intended to be international in scope, meaning that Western Europe would supply the technology and wealth necessary to help Russia build its socialist utopia. Therefore, Lenin hoped that a revolution in Russia would inspire more timely revolutions in Britain and Germany. But rather predictably, no international revolution was forthcoming.

This certainly put Lenin and the Bolsheviks in a difficult position. Faced with a crumbling economy and guided by rigid dogma, they had to simultaneously rebuild the Russian economy while also constructing their socialist wonderland – crucially, without support from the West. The weight of the task appeared even greater given that Marx had written little about how a socialist society was supposed to look like after a revolution. (His modern-day disciples can still not be bothered to do that. In an otherwise fawning interview, the Guardian recently asked the Marxist economist and media star Grace Blakeley: “How do you abolish global capitalism?”, to which Blakeley replied: “I see the dissolution of the divide between people who own stuff, and people who work for a living as essential to the construction of a socialist society, […] [b]ut I don’t know what that will look like. Marx was also very vague about it.”)

Of course, alongside devoted Marxist dogmatists, I would have been first in line to argue that Lenin should have stepped down and allowed capitalism to run its natural course in Russia. But that was about as likely as me urging modern socialists to dismantle today’s social democratic state in favour of accelerationist capitalism, where they wait for their socialist messiah, and I enjoy the spoils of unprecedented growth.

Moreover, it would have been equally unrealistic for the Bolsheviks to have imposed capitalism as a temporary stage towards socialism. Marx himself contradicted the idea, for despite arguing that only full capitalism could generate the wealth needed for an eventual socialist society, he also condemned market forces as ‘anarchic, causing overproduction, business cycles, and crises.’ Instead, he claimed that collective ownership and planning were more efficient than a free-market economy (Gregory, 1990: pp.19-20). So, Lenin faced the impossible: generating economic growth while conforming to anti-market economics.

However, it was not until the late 1920s that the Stalinist command economy, often critiqued by the modern Left, came to full fruition. Instead, from 1917 to 1928, the Bolsheviks experimented with two alternatives of a socialist economy – alternatives often promoted by the modern Left today. Their admiration for this early period of the Soviet Union stems from their reverence for figures like Lenin and Trotsky, whom they believe stood in opposition to Stalin’s “state socialism” (Eagleton, 2011: p.7). Yet, the historical record tells a different story. Contrary to this warped historiography, Stalin ultimately implemented many of the policies Lenin and Trotsky advocated for during this period – policies rooted in Marxist theory. But to give the benefit of the doubt to the Left, let’s examine how these alternative economic models faired at the time.

War Communism, 1918-1921

The first experiment launched by the Soviets was War Communism, which lasted from 1918 to 1921. Initially developed in response to the pressures of the Civil War, War Communism evolved into an ideological project aimed at establishing real-existing communism at an unprecedented pace and was enthusiastically championed by figures like Trotsky.

True to Marxist ideals, the Soviet state banned private enterprise, nationalised industry, outlawed private trade, and even attempted to abolish money itself (Nove, 1992: p.68). Then again, the state’s limited capacity meant many of these policies were never fully enforced. For instance, unable to manage all nationalised industries, most enterprises were left to either collapse or fall under chaotic worker control. Similarly, the attempted abolition of money, though never formally codified and confined to state transactions and worker payments, was as much a reaction to rampant inflation than any commitment to Marxist ideology (ibid: pp.58-9). The Soviet state’s delirious money printing had driven prices up by a staggering factor of 8,000 between 1917 and 1921 (Gregory, 1994: p.85).

Since War Communism resembled more of an anarchistic free-for-all than a centrally planned economy, Soviet economist Lev Kritsman famously described it as ‘the most complete form of proletarian natural-anarchistic economy’ (Nove, 1992: p.64); a string of words that would probably go down well with a student audience today.

Predictably, this model brought widespread suffering. However, it wasn’t only the disintegration of the free market that led to famine, a substantial decline in factory output, and the eventual rebellion of the Kronstadt sailors in March 1921, but also the new socialist state’s war against its chosen class enemy – the peasants. Some left-wingers today might find it odd that the Soviets targeted the peasantry, especially given that most lived in extreme poverty and were hardly part of any evil capitalist bourgeoisie concentrated in Moscow or St. Petersburg. However, much like the modern Left’s distaste for working class, right-wing voters today, the Soviets had little tolerance for anyone who didn’t fit into their ideological narrative.

The Bolsheviks’ hatred of the peasantry, of course, derived from Marxist ideology. Marx viewed the peasantry as the ‘epitome of backwardness,’ a class that was not meant to exist within the capitalist epoch, which was only to be occupied by the proletariat and bourgeoisie. Marx also resented the peasantry’s often conservative politics (in Russia, they had been key supporters of the Tsar) branding them ‘rural idiots’ and ‘barbarism within civilisation.’ However, their greatest crime was their ownership of the land they farmed, no matter how small or customary, or if they were bound to it by serfdom. As a result, Marx labelled the peasantry as ‘petit bourgeoisie,’ no better than the wealthy industrialists who owned four-story mills in Manchester (Duggett, 1975: pp.159-160).

This once again posed a major problem for Lenin: how could they build a socialist utopia in a country where the vast majority of the population were peasants who did not fit within Marx’s theory of class conflict? This problem was further exacerbated by the Bolsheviks’ own actions, as one of their first acts in power was to issue the Decree on Land in November 1917. The Decree abolished private landlords and redistributed land to the peasantry in an opportunistic manoeuvre to secure peasant support for the revolution. This dilemma, known as the Peasant Question, became central to debates leading up to Stalin’s takeover.

Lenin’s solution to the peasant question was thus: mobilise the poorest peasants to wage class war against the most successful, and by extension, the most productive, peasants (known as the kulaks) who were deemed the true petit-bourgeois threat. The poor peasants would then establish collective ownership of the land and become key allies of the urban proletariat within a new socialist order (Nove, 1992: p.29). Hence, the decree on land was not meant for all peasants, but only those poorest members who could be manipulated by the Soviets.

It was no surprise, then, that in January 1918, Lenin called for a ‘ruthless war against the kulaks’ – a category so loosely defined that it essentially included anyone who owned four acres and a mule. Moreover, the state seized peasant agricultural surpluses to feed the war effort, which combined with the removal of the most productive farmers, led to mass food shortages and eventual famine. Ironically, it was the state’s incapacity to fully enforce these policies that both saved the country from wider famine and helped the Soviets win the Civil War, as many peasants untouched by Bolshevik aggression fought against the Whites, fearing the return of their equally brutal former landlords.

Then again, Lenin’s answer to the peasant question – full war on the kulaks and the forced collectivisation of land –would later be carried out to its full, brutal extent by Stalin in the 1930s, leading to the inevitable mass famines of the period.

War Communism was evidently not a viable alternative to Stalin’s Command Economy. Moreover, the policies advocated by Lenin and Trotsky during this period, namely the war on the kulaks, were merely awaiting their full animalistic implementation by Stalin. Here, we see a direct ideological progression: from Marxist principle to Leninist policy to Stalinist execution.

The New Economic Policy, 1921-1928

Following the devastation of War Communism, Lenin became convinced that the Soviets needed ‘to take one step back in order to [later] take two steps forward.’ As a result, in 1921, they were forced to make a significant retreat in their drive toward a socialist utopia by installing the New Economic Policy, or NEP.

The NEP effectively created a mixed economy. The “commanding heights” of the economy – heavy industry, transport, and banking – were nationalised and subject to central planning, while the remaining large industries were nationalised but able to operate commercially, much like the “state capitalism” model seen in modern China (Gregory, 1994: p.88). Meanwhile, small private enterprises employing up to 20 workers were legalised.

However, at its heart, the NEP was a reluctant alliance with the peasantry, which allowed peasants to have private ownership and a commercial market in agriculture. Moreover, forced food requisitioning was replaced by a tax, first payable in kind, then in money. All these measures helped to ease the burden on the peasantry, who were really the only ones capable of feeding Russia, especially as food imports had essentially collapsed following the revolution.

The NEP provides economic historians with a remarkable real-time case study comparing the performance of nationalised and privatised industry, even if those nationalised industries did adhere to capitalist cost-accounting methods. In the predominantly nationalised industrial sector, recovery was sluggish following the destruction of the Civil War. For example, by 1924, steel output had only reached 23% of its 1913 level (Gregory, 1994: p.93). In stark contrast, there was a rapid recovery in the market-leaning agricultural sector, with estimates suggesting that by 1923, agricultural output had recovered to 75% of pre-war levels (Nove, 1992: p.92).

Nothing better encapsulates the disparity between nationalised and privatised sectors of an economy more than the Scissors Crisis of 1923. And no, this wasn’t a massive shortage of scissors, though, given Soviet history, that likely happened too. Instead, the term was used to describe the widening gap between industrial and agricultural prices that emerged in the Soviet Union in 1923.

The fast recovery in agricultural output led to a considerable increase in the supply of agricultural goods and inevitable price declines, meaning more people were able to access food. On the other hand, the supply of industrial goods lagged far behind and was unable to meet rising demand, causing prices to soar. When plotted on a graph, the diverging price trends of industrial and agricultural goods resembled an open pair of scissors.

This crisis caused grave concern for the Soviets. They feared that if peasants couldn’t afford industrial goods from the towns, they would refuse to sell their crops, instead hoarding them and essentially starving the cities. Yet the Soviet leadership misread the crisis. Rather than recognising the need for a free market in industry to boost productivity and lower prices, they rather predictably imposed price controls on industrial goods. This, of course, only worsened the shortage in industrial goods, as prices couldn’t cover production costs, meaning supply never met demand and resulting in a ‘goods famine’ – a problem that would plague the Soviet Union for the rest of its existence.

These economically illiterate decisions, of course, stemmed from the Soviets’ deep ideological aversion to the market economy, despite its clear benefits during the NEP. They were particularly angered by the emergence of a new class of wealthy kulaks, mostly peasants who had enough surplus grain to feed their children above the subsistence level, and private traders known as “NEP men”, who capitalised on arbitrage opportunities but, more importantly, upheld the distribution networks that kept food on the tables of the urban poor.

Yet, much like the socialists of today, any success had to be viewed with suspicion, even if it meant success in feeding people.

So, in 1928, when agricultural output failed to meet the Communist Party’s expectations – evidently due to a poor harvest –it was only natural that they accused the kulaks of hoarding grain. As a result, the NEP was abandoned, and Stalin was finally able to bring about the liquidation of the kulak class and forced collectivisation that Lenin had wanted all along.

Then again, it is true that there was some ideological support for the NEP within the Communist Party following Lenin’s death in 1924 and most notably from Nikolai Bukharin, who envisioned the Soviet Union ‘riding into socialism on a peasant nag’ by allowing the peasantry to slowly build up their savings and stimulate demand for industrial goods. However, it was the party’s left wing, led by Trotsky and Soviet economist Yevgeni Preobrazhensky, who rejected this gradualist approach and instead advocated for a policy known as ‘primitive socialist accumulation’; a belief that rapid industrialisation could be forced using capital expropriated from the peasantry. This theory stemmed from Marx’s distorted view of the English enclosure movement of the eighteenth and nineteenth centuries and became the foundation for Stalin’s first Five-Year Plan and the Soviet command economy that the modern left so desperately tries to distance themselves from.

Therefore, Stalin was the true ideological successor to Lenin, Trotsky, and, of course, Marx. By the late 1920s, the only real distinction between Stalin and Trotsky was that, while Stalin promoted "socialism in one country," Trotsky insisted on spreading the horrors of their policies on a global scale. In essence, they shared the same vision, Trotsky just wanted to export it.

In that sense, we can at least be grateful to Stalin that he kept his despotic economic system within his own borders – though, tragically, Eastern Europe would not be granted the same clemency fifteen years later.

A Mirror for the Modern Day

Soviet apologists often contrast the Soviet Union’s industrialisation positively to the backwardness of pre-revolutionary Russia. But of course, without the October Revolution, Russia would not have stayed the way it was 1917 forever. In 1905, Imperial Prime Minister Pyotr Stolypin had initiated a set of reforms that sought to enable peasants to break away from the regressive village commune, known as the mir, and allow them to enclose their land holdings into privately owned plots which could be bought and sold on the market. By 1916, around two million peasant households had left their communes and established private farms (Nove, 1992, p.13). However, this only accounted for about 15% of peasant holdings in European Russia (Figes, 2014, p.59), meaning progress was slow, after all, Britain’s enclosure movement took centuries.

Unfortunately, Stolypin’s assassination in 1911 and the outbreak of the First World War in 1914 ultimately put a stop to the programme. This was particularly heart wrenching when one considers the considerable gains from the introduction of commercialisation and capitalist relations in agriculture. For example, from 1900 to 1913 there was an increase in agricultural output by 33.8%, while grain exports rose by 50% from 1905 to 1913 (Nove, 1992: p.14). In the words of eminent Economic Historian of the Soviet Union, Alec Nove (1992: p.16):

‘If the growth rates characteristic of the period 1890-1913 for industry and agriculture were simply projected over the succeeding fifty years, no doubt citizens would be leading a reasonably comfortable existence and would have been spared many dreadful convulsions.’

But the economic ideas of Marx, Lenin, and Trotsky, still championed by socialists today, not only shaped Stalin’s command economy, which they now try to disown, but continue to influence policies today that stifle growth. The truth is the Soviet Union experimented with the alternative socialist models the modern Left advocates for today, only to eventually settle on the real deal: Stalin’s command economy. Unfortunately, while they chose the only real path to socialism, that was not the path to economic growth. The true foundation for prosperity lay with those derided peasants who, through Stolypin’s land reforms and the NEP, could have built a better future through the only system that truly delivers: free market capitalism.

In my next article, I will examine Stalin’s command economy in detail, explaining how it functioned and why it failed using economic theory. However, I hope this first instalment has equipped you with the necessary historical knowledge to challenge any Leftists claiming that the “Soviet Union was not real socialism.”

Aymen Aulaiwi is a DPhil student at Lincoln College, Oxford

Watch the his first interview on the IEA Podcast here

References

Duggett, M. (1975). Marx on peasants. The Journal of Peasant Studies, 2(2), pp.159–182.

Eagleton, T. (2011). Why Marx was right. Yale University Press.

Figes, O. (2014). Revolutionary Russia, 1891-1991: A Pelican Introduction. Pelican Books.

Gregory, P. R. (1990). The Stalinist Command Economy. The Annals of the American Academy of Political and Social Science, 507(1), 18–25.

Gregory, P. R. (1994). Before command: An economic history of Russia from emancipation to the first five-year plan. Princeton: Princeton University Press.

https://www.afdb.org/en/the-high-5/industrialize-africa

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Joireman, S. F. (2011). Private Enforcement of Property Rights: The Demand for Specialists in Violence. In Where There Is No Government. Oxford University Press.

Niemietz, K. (2017) ‘but that wasn’t real socialism!’ (part 1: The USSR), Institute of Economic Affairs. Available at: https://iea.org.uk/but-that-wasnt-real-socialism-part-1/

Nove, A. (1992). An economic history of the U.S.S.R., 1917-1991 (3rd ed.). Penguin Books.

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