How did the economic system of the Soviet Union manage to hold up and function relatively well for many years, and why did it collapse so quickly in the end?
In: Economics
Well, first of all you should disabuse yourself of the notion that the Soviet economy ever functioned “relatively well”. They were always a basket-case by comparison to Western capitalist economies.
What allowed them to paper over the inherent deficiencies in their system, and for a time made their system *appear* to work well on the face of it, was the rapidity with which the Soviet society industrialized in the 1930s. They went from an agrarian economy with little industry whatsoever to heavily industrialized within 15 years and accomplished this with the assistance of foreign specialists, industrial espionage and blatantly copying Western technology, forced labour, and not giving a damn if the changes pushed through their command economy resulted in the death of millions of their own countrymen.
When the forces of supply and demand don’t matter to your authoritarian government, said government can do whatever the hell they want. Demand for food far outstripped supply by the early 1930s and a capitalist economy would have shifted from industrialization efforts back to agriculture to serve this undersupply, but the Soviet government limited food supply and they let millions of people starve instead. The threat of violence kept the workers in line.
After the Second World War the country relied on primary industry to keep itself afloat; the territory it had was replete with natural resources, and they made their money selling oil, natural gas, coal, steel, and the like. They had many very bright people, but their technical prowess was built on a foundation of licensing technology from friendly regimes, or out-and-out stealing from the West. They didn’t innovate, and relied almost entirely on the West to create new technologies.
With an authoritarian government calling the shots and demanding certain levels of productivity, the system was replete with graft and falsified statistics to prevent reprisals. Managers would simply falsify their production records to keep higher ranking members of the party apparatus from looking too closely at their areas of responsibilities. The entire country was full of “yes-men”, who simply told their superiors what they wanted to hear. These falsified statistics were parroted all the way up the command structure of the party, and officially published economic results were thus just a fantasy. The Soviet system’s economic output was never as productive as the Soviet government claimed it was.
It all came crashing down in the ’80s and early ’90s after the economic stagnation during Brezhnev’s reign. During the ’70s the only thing keeping the economy afloat was high oil prices and other resource extraction. The command economy meant that the secondary and tertiary sectors were not focused on what the people needed, and they underproduced goods they needed and overproduced good they didn’t. Construction projects were often pointless “make-work” endeavours that only existed to keep workers occupied.
Andropov, head of the KGB in the ’70s, realized that the true state of the economy was in shambles after the price of oil plummeted in the early 1980s, and when he took power after Brezhnev’s death he tried to initiate a crackdown on the graft and statistical bullshittery that was so common but it didn’t go far enough and didn’t work, and he died only a year later. Chernenko succeeded Andropov and he too died after only a year in office, with essentially no meaningful reforms enacted. Gorbachev’s regime began to face reality and after opening up the Soviet society to the world, the populace rapidly realized what many suspected all along: the economy was a farce. Gorbachev kept things going by opening the economy up to world markets, but the government structure fell apart when social reforms didn’t move fast enough to keep pace with the demands a newly-opened society made when they compared their miserable living conditions to the West.
The key takeaway here is that the economy didn’t work “well” for a time and then fall apart: it was always in shambles, but the authoritarian government hid the reality of this from the people and from the world at large. It seemed to have quickly fallen apart at the end only because the reality of the situation was so quickly disseminated.
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