What caused the shortages of goods in the later days of the Soviet Union?
In: Economics
The USSR was a command economy, the government decided what would be produced not the free market. Command economies almost always have a mismatch between supply and demand that is not corrected for because the central government is unable to anticipate what people will want and is slower to react than a free market model where prices change and incentivize more or less of a good.
A modern example is North Korea, their government has decided to spend more resources on weapons than food. Their grocery stores are nearly empty and there is a huge demand for food but the supply doesn’t increase because the government wants weapons.
Edit: https://www.investopedia.com/ask/answers/050615/how-did-soviet-economic-system-affect-consumer-goods.asp
Edit 2: The US economy very rapidly outpaced the soviets and while the US could afford fund massive defense projects and spend lots of money without compromising its economy, the soviets could not. Their economy was inefficient and only got worse as they tried to compete with the US allocating more resources to things their people didn’t need. Then in the 90’s and 2000’s after the collapse, today’s oligarchy structure formed and the russian federation is now a [petrostate](https://en.m.wikipedia.org/wiki/Petrostate) under a dictatorship, with very low social mobility and with [dutch disease](https://en.m.wikipedia.org/wiki/Dutch_disease) crippling other industries.
Theft. The entire soviet way of life was based on stealing everything. How good your job was depended on what it enabled you to steal and everyone did, from premier to cleaning lady. Thats why nothing ever made it to shelves in the shop, yet somehow people still got their goods.
The thing to understand about authocracies is that they are inherently corrupt to the level that is hard to imagine for someone grown up in the west. They don’t run on rule of law, law is meaningless, they run on personal relationships. Who knows who makes the difference between living like a king and being free to do whatever you want, or ending up in gulag.
A lot of factors.
Russia was way behind the west in terms of industrialization before the revolution. So they faced the challenge of trying to shift to a mass mechanized production society.
Because they took power through a violent coup, they quickly became authoritarian to put to dissent, like pretty much all countries that experience a violent coup against a previous system do, regardless of whether the new government is communist, capitalist, Islamist or whatever.
Authoritarian governments have a lot of real and perceived and potential enemies within and without, so a lot of resources, go to fighting that dissent, and a lot of opportunities for collaboration and resources are lost. The USSR, for instance, was cut off from a lot of trade from parts of the west, either by policy or principle, so they had tons of opportunity cost.
Such authoritarian governments breed corruption. Scarcity is sort of a self sustaining cycle. When goods are scarce, people learn to steal and cheat to get what they want and need. And that makes things more scarce and reinforces the corruption. Russia was authoritarian and corrupt as a Tsarist feudalist state, and as a communist state and now as a capitalist state.
Cold war competition with the US funneled even more resources away from local needs. Military build up, proxy wars, and show-off competitions like the space race were massive drains.
People are correct to point to the problems with command economies having bad incentives and not adjusting to demand like market economies, but honestly, the USSR would have had major shortage issues even without that for all the reasons above.
Two key things communist run industries are hopelessly inefficient, there is zero incentive to produce more and zero incentive to innovate with new methods of production, so the same factories and farms etc. produce less each year and of poor quality. Then some items need to be imported and you need foreign exchange to buy stuff and they had run out of money and no one wanted to buy the poor quality exported goods.
At its most basic, it was because the Soviet Union was a command economy, rather than a market-based economy.
This meant that production was determined by political directive, rather than the market incentive of profit.
The Soviet Union tried to develop state economic planning into an economic science, and had huge institutions dedicated to this task, like the famous Gosplan. It was a failure. https://en.m.wikipedia.org/wiki/Gosplan
Profit fulfils a couple of critical functions in an economy.
Firstly, it acts to transfer information on demand and supply balances between all the many millions of economic agents in a country. This creates rapid and crucially *decentralised* feedback within the economy; you quickly get more production of what is profitable (ultimately reducing prices) and less production of what is not profitable.
You can imagine an economy full of freely trading agents as a hugely distributed computer with far more ability to process economic information than any planning institution.
The other thing profit does is that it provides the *incentive* to actually respond to economic signals.
The Soviet Union, over time, cumulatively misallocated vast amounts of capital due to this economic model, institutionalised black and grey markets into the fabric of society (because mismatched demand and supply inevitably give rise to these things), and also state corruption (as resources could only be obtained through administrative dictat rather than fair trade).
By the end, Gosplan was even running a system of ‘shadow prices’ to try to mimic a market economy without actually letting it be a market economy. Still didn’t work.
I would strongly recommend you read this well-known blog article ‘In the Soviet Union, Optimization Problem Solves You’ which is a slightly more technical discussion of the computational problem of economic optimization under central planning. (That’s not an endorsement of every single thing in the article by the way, but it is interesting)
https://crookedtimber.org/2012/05/30/in-soviet-union-optimization-problem-solves-you/
I can also recommend the book ‘Red Plenty’ that it refers to. It’s a novel, but it brings how these ideas were thought of at the time to life.
One really important note about the Soviet Union is that they made a policy decision early on to match the West in terms of military power. They did this because they had already been invaded by the West after WW1, and they were again invaded by Nazi Germany during WW2. Unfortunately for the Soviets, Russia was a backwater and had no where near the industrial capacity of the western powers, and so they essentially neglected their consumer goods industry. This is why they had no problems mass producing tanks and AK 47’s, but you had to wait for basic goods like toilet paper.
The other important thing is that they were, like others have said, a command economy. Command economies operate everything from the top down of the State, rather than through a “free market”. This leads to lots of inefficiencies due to mistakes in the planning process, and not a great way to rapidly adapt to those shortages and mistakes. It’s worth noting that the Soviets did most of these calculations by hand without the assistance of computers, which essentially created an entire class of professional bureaucrats that just created more issues down the line (black markets, theft, etc). In modern day, lots of businesses (such as Walmart, Amazon, etc) actually use centralized economic planning techniques at the same scale the Soviets did, but they have the benefit of modern technology that makes it much more manageable.
They always had shortages of goods. It just escalated at the end when combined with loosening of control of information. just led to a point they could no longer keep it hidden from everyone
Brain drain
At the late 80s a lot of technocrats and small bureaucrats knew that their Western counterparts were making much more money than them and it was much easier to flee from Soviet Union at this period of time than in past decades.
Now, for the majority of human history there was no such thing as free market but some sort of centralized planned economy, so saying a shortage of goods is due to a centralized planned economy is no different than saying that American troops in WW2 had shortage of goods because they depended on people in charge of providing goods for them instead of a free market.
The true reason Soviet Union got shortage of goods is because if the technical people and bureaucrats in charge of production of goods were leaving the country due to better salaries elsewhere, there was no way to ramp up production, leaving the country with shortage of goods.
Simple: They completely ignored economics 101, i.e., the law of supply and demand. As others have pointed out they also suffered from being an underdeveloped country at the turn of the 20th century. But trying to control the production (i.e. supply) via a massive bureaucracy was the wrong way to try to fix that. There was a popular joke in the USSR: “We pretend to work and they pretend to pay us”.
Another commenter here blamed it on theft or equivalently black markets and corruption. Those things flourished but they are the ***result***, rather than the ***cause***, of a failed economy.
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