Economy of the Soviet Union

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The economy of the Soviet Union (Russian: экономика Советского Союза) was based on a system of state ownership of the means of production, collective farming, industrial manufacturing and centralized administrative planning. The economy was characterised by state control of investment, public ownership of industrial assets, macroeconomic stability, negligible unemployment and high job security.

Beginning in 1928, the course of the Soviet Union economy was guided by a series of five-year plans. By the 1950s, during the preceding few decades the Soviet Union had rapidly evolved from a mainly agrarian society into a major industrial power. Its transformative capacity—what the White House National Security Council of the United States described as a "proven ability to carry backward countries speedily through the crisis of modernization and industrialization"—meant communism consistently appealed to the intellectuals of developing countries in Asia. Impressive growth rates during the first three five-year plans (1928–1940) are particularly notable given that this period is nearly congruent with the Great Depression. During this period, the Soviet Union encountered a rapid industrial growth while other regions were suffering from crisis. Nevertheless, the impoverished base upon which the five-year plans sought to build meant that at the commencement of Operation Barbarossa the country was still poor.

A major strength of the Soviet economy was its enormous supply of oil and gas, which became much more valuable as exports after the world price of oil skyrocketed in the 1970s. As Daniel Yergin notes, the Soviet economy in its final decades was "heavily dependent on vast natural resources–oil and gas in particular". However, Yergin goes on by saying that world oil prices collapsed in 1986, putting heavy pressure on the economy. After Mikhail Gorbachev came to power in 1985, he began a process of economic liberalization by dismantling the command economy and moving towards a mixed economy. At its dissolution at the end of 1991, the Soviet Union begat a Russian Federation with a growing pile of $66 billion in external debt and with barely a few billion dollars in net gold and foreign exchange reserves.

The complex demands of the modern economy somewhat constrained the central planners. Corruption and data fiddling became common practice among the bureaucracy by reporting fulfilled targets and quotas, thus entrenching the crisis. From the Stalin-era to the early Brezhnev-era, the Soviet economy grew much slower than Japan and slightly faster than the United States. GDP levels in 1950 (in billion 1990 dollars) were 510 (100%) in the Soviet Union, 161 (100%) in Japan and 1,456 (100%) in the United States. By 1965, the corresponding values were 1,011 (198%), 587 (365%) and 2,607 (179%). The Soviet Union maintained itself as the second largest economy in both nominal and purchasing power parity values for much of the Cold War until 1988, when Japan's economy exceeded $3 trillion in nominal value.

The Soviet Union's relatively small consumer sector accounted for just under 60% of the country's GDP in 1990 while the industrial and agricultural sectors contributed 22% and 20% respectively in 1991. Agriculture was the predominant occupation in the Soviet Union before the massive industrialization under Joseph Stalin. The service sector was of low importance in the Soviet Union, with the majority of the labor force employed in the industrial sector. The labor force totaled 152.3 million people. Major industrial products included petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, electronics, food processing, lumber, mining and defense industry. Though its GDP crossed $1 trillion in the 1970s and $2 trillion in the 1980s, the effects of central planning were progressively distorted due to the rapid growth of the second economy in the Soviet Union.

Based on a system of state ownership, the Soviet economy was managed through Gosplan (the State Planning Commission), Gosbank (the State Bank) and the Gossnab (State Commission for Materials and Equipment Supply). Beginning in 1928, the economy was directed by a series of five-year plans, with a brief attempt at seven-year planning. For every enterprise, planning ministries (also known as the "fund holders" or fondoderzhateli) defined the mix of economic inputs (e.g. labor and raw materials), a schedule for completion, all wholesale prices and almost all retail prices. The planning process was based around material balances—balancing economic inputs with planned output targets for the planning period. From 1930 until the late 1950s, the range of mathematics used to assist economic decision-making was, for ideological reasons, extremely restricted.

This page was last edited on 16 June 2018, at 15:46 (UTC).
Reference: under CC BY-SA license.

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