by Noah Tucker

The most devastating rebuttal of socialism - eclipsing all the evils of the capitalist system, and banishing the conception of a better world to the realm of wishful thinking - is that it just doesn’t work; for which the prime evidence is the (alleged) dismal performance of the USSR’s economic model of state ownership and planning. Remarkably, the generally accepted accounts of the 20^th century socialist economies are based on ‘free market’ theories, which are proven false in their claims about capitalism by our 21^st century experience.

CAPITALISM VERSUS SOCIALISM

Around us are the fruits of our Western economic model, honed by the privatisations and market reforms recommended by anti-socialist theorists: from the lack of any impetus from our market economy to forestall the climate catastrophe, to decaying infrastructure and living standards in the system’s own most developed heartlands, to the grinding down of productivity growth to almost zero in major Western economies. And now the latter, even when faced with the alleged existential threat of Russia, with its much smaller military budget, cannot match the output of Russia’s munitions industry.  Since the catastrophic 1990s, Russia rebuilt this sector using centralised control and state ownership (1), whereas NATO’s counterparts, as recently remarked in The Guardian, “run lean operations… and are designed to maximise profit for shareholders.” (2)

Under advanced liberal capitalism, with pluralist democracy and the ‘rule of law’ providing supposedly the perfect environment for it to flourish, the private enterprise system’s only recent economic success is that of making rich people richer. Yet the notion persists, even among those critical of capitalism’s outcomes, that it is socialism which doesn’t work. Branko Milanović, former Chief Economist at the World Bank, wrote in 2019:

“[F]ollowing the Russian Revolution in 1917, capitalism shared the world with communism, which reigned in countries that together contained about one-third of the human population. Now, however, capitalism is the sole remaining mode of production…[T]he ineluctable truth is that capitalism is here to stay and has no competitor. Societies around the world have embraced the competitive and acquisitive spirit hardwired into capitalism, without which incomes decline, poverty increases, and technological progress slows.” (3)

This charge cannot be brushed aside, nor can its prime exhibit, the supposedly dreadful economic record of the Soviet Union and allied countries. If public ownership and state management tend intrinsically to inefficiency and stagnation, are we not limited to some light touch regulation and redistribution, with some incentives to moderate our rush towards environmental calamity, while allowing the market the scope to ‘create wealth’? But that is indeed what we already have as the basis of policy in most Western countries.

REAL SOCIALISM  

Nor is this accusation deflected by saying of the Soviet experience, "that wasn’t really socialism" or "that was the wrong kind of socialism".  To such arguments, Milanović responded,

“There is no doubt that its essential characteristics, non-private ownership of the means of production and centralisation of economic decisions, were fully in accord with traditional, including Marx’s, conceptions of socialism. Furthermore, we do not deny that today’s capitalism is ‘capitalism’ even if some libertarians or even Friedmanites might not think so because of (say) too strong role of the state, existence of trade unions or high taxes. Such absolutely ‘pure’ theoretical constructs, whether we speak of capitalism, socialism or feudalism have never existed… ‘really existing socialism’ was indeed socialism.” (4)

Further, these were the societies created in places, from Russia, China, Vietnam, Central Asia and Central Europe to Cuba, where the people who espoused communist and socialist views found themselves in a position to build a new system. Why should a repudiation of the economies that followed - accompanied by promises that a future ideal socialism would differ in ways that would solve the alleged intractable inefficiencies of all previously existing socialised systems - be taken at face value?

Was 20^th century socialism really such an economic failure? Despite the imposition against it of wide-ranging sanctions by the USA and its allies, and the diversion of economic resources to balance the military forces of the capitalist world, the USSR outpaced the Western bloc in GDP growth over the period of the ‘Soviet planning model’. (5) There is evidence also of innovation, efficiency, and meeting consumer needs - everything that socialised economies are supposedly unable to do.

TECHNOLOGY AND GROWTH  

But what is economic growth? Of basic importance is the inextricable connection between long term economic growth and improvements in production technology. A Harvard course introduction summarises,

“[T]echnology is the key driver of economic growth of countries, regions and cities. Technological progress allows for the more efficient production of more and better goods and services, which is what prosperity depends on.” (6)

If we put aside such factors as an increase in the size or the working hours of the workforce, discovery of natural resources, appropriation through financial structures, the ups and downs of capitalist booms and crises, currency markets, pandemics etc then:

• long term economic growth essentially is the introduction and use of improved production technology
• the gap between the rich developed countries and the poorer countries essentially is the gap in the level of production technology in general use in those countries.

Technology, in this context, means not only the machinery and processes used in producing goods and services, but the knowledge used to advance the process of production, embodied in production equipment, or in ‘know-how’, for instance in understanding how to design or use such equipment. Technology can be developed in institutes but also arises from the day-to-day experience gained in advanced production processes. It can be held or transferred, in the form of designs, patents, technology licenses, etc. Thus, a US government sub-committee, reporting on measures taken to prevent the USSR from gaining access to production methods used by Western civilian aircraft manufacturing corporations, explained:

“The critical technology related to commercial aircraft and jet engines lies in the design, materials, and manufacturing processes, not in the end products…This know-how consists of various techniques for design integration, materials selection and processing, and manufacturing and assembly procedures critical for production. The product that results is not in itself critical technology but the result of a combination of processes constituting the know-how of the end product's manufacturer.” (7)

WESTERN DOMINANCE  

The advancement of production technology is a global phenomenon. Research and discovery thrive on interaction with the most advanced in the field. The advances which eventually made Western Europe and the USA the centres of the industrial revolution of the 19th century followed the gradual accumulation through trade, exploration, and military subjugation, of theoretical and practical discoveries from elsewhere (to say nothing of the transfer of physical wealth via the slave trade, the robbery of gold and other resources). Decimal numbers and algebra, block and movable-type printing, gunpowder, the magnetic compass, the use of coal to smelt iron, the spinning machine – these indispensable precursors of Western technology were not Western inventions. Even today, US public and private sector R&D thrives on the input of highly skilled researchers recruited from all over the world.

This global contribution to the economic supremacy of the West is repaid mainly by further subjugation and underdevelopment, extensively through the US and Western hoarding of technology, or the disbursement of technological crumbs at high prices and with conditions attached. As a Princeton University research paper confirms, “Research and development efforts are concentrated in a relatively small number of highly developed countries, which means that most countries most of the time rely on adopting technology from abroad.”

Even for the OECD countries, most new technologies are not internally developed. Foreign sources account for 90% or more of technology-based productivity growth for most countries. Further, “[T]he market for new technologies is plagued by problems… Firms try to monopolize the benefits of a technological advantage by keeping new technology secret… A range of empirical evidence indicates that international technology transfers carry significant resource costs…” (8)

RESTRICTING THE SOVIET UNION 

Whatever its economic system, and even were the Soviet Union not emerging from a position of backwardness, it would still have been highly reliant on importing technology from abroad, and would thus have been vulnerable to the long term impact of technology sanctions. The nascent USSR’s emergence from the underdevelopment of the Tsarist Empire was hampered by the civil war and foreign invasions that followed the Bolshevik revolution. By the late 1920s it had recovered sufficiently to begin a programme of industrialisation, mapped out through its economic planning agency. Importing machinery and technical expertise from the US and Western Europe, it adapted and learned from more advanced production methods in building up the new socialist industries.

The effectiveness of this programme became apparent to Western leaders when, after being invaded by Nazi Germany, the most industrially advanced country in Europe (and which had the resources of most of the continent at its disposal), the production capacity of the Soviet Union was revealed through its success in taking on and defeating the aggressor.

The USA rewarded its erstwhile wartime partner by subjecting it to a state of technological siege. As a US Congress report recounts, “…by 1947, some U.S. policymakers had begun to argue that the United States should restrict its trade with the Soviet Union because U.S. technology might contribute to the development of the Soviet economy and thus improve the country’s military capacity.”

To coordinate and enforce these restrictions, an international body was established, “…the Coordinating Committee for Multilateral Export Controls (CoCom), an exclusive, informal organization, whose operations were largely hidden from public view, where members of the North Atlantic Treaty Organization (NATO) and other aligned states coordinated controls on exports to the Soviet Union and its close allies.” The objectives of the USA’s controls, as the report notes, encompassed, “…prevent[ing] certain foreign states… from acquiring certain goods (and technology, including, importantly, design and manufacturing ‘know-how’)…For example, [by the] attempt to…block foreign states from acquiring materials to build oil pipelines…prevent[ing] foreign industries from acquiring machines or software for producing advanced semiconductors…” (9)

The severity of these restrictions varied with levels of international tension. Détente in the 1960s to mid ‘70s allowed some significant technology exports where companies or countries could show that the Soviet Union could derive no conceivable ‘dual use’ capability from the transfer. These included Soviet purchases of nitrate processing equipment, and the contract with Fiat to help set up the VAZ car factory. Overall, however, the CoCom controls had the cumulative effect of isolating production in the USSR from cutting edge industrial technology.

Would any honest enquirer dream of examining the problems and progress of economic development in Cuba, Venezuela or Iran without looking at the impact of the US-imposed sanctions on those countries? Western journals are gleefully reporting on the impacts of the USA’s current technology sanctions on China, although they have only been imposed relatively recently, and although China had already caught up with the USA in purchasing power parity GDP - although not of course in per capita production.

ORIGINS OF TINA  

In the case of the Soviet Union, however, the usual narratives regarding its economic development and its eventual slowdown pay no attention whatsoever to this factor. Instead, the anti-socialist economic theories which provided the intellectual raison d’être for neoliberalism are brought into play. The core of socialism’s alleged unviability was set out by the influential 19^th century philosopher Herbert Spencer. It was he whose remarks were paraphrased by Margaret Thatcher into her notorious catchphrases ‘There is no alternative’ (to free market capitalism) and ‘There is no such thing as society’.

In Spencer’s philosophy, unfettered capitalism was useful in weeding out those who, he believed, are “worst fitted for existence” (thus he opposed regulation of food and medicines, reasoning that the elimination of people who consumed poisonous products was a boon in terms of “survival of the fittest”). Universal suffrage and literacy having curtailed some of the former brutal honesty in pro-capitalist arguments, these views are nowadays something of an embarrassment. Spencer’s perspective later became the basis of the Austrian School of radical pro-capitalist economics, holding laissez faire capitalism to be the natural order - whereas socialism would be artificial, imposing a stultifying bureaucracy instead of the spontaneous market. Socialism and communism cannot work, because they run counter to man’s “divinely ordained” desire for “personal acquisition”, which “presupposes a right of private property”. (10) Therefore, as Ludwig von Mises, the founder of the Austrian School, asserted:

“The situation is completely transformed when an undertaking is nationalised. The motive force disappears with the exclusion of the material interests of private individuals…it is now generally recognised that there is no internal pressure to reform and improvement of production in socialist undertakings, that they cannot be adjusted to the changing conditions of demand, and that in a word they are a dead limb in the economic organism.” (11)

PRICES, KNOWLEDGE AND NONSENSE 

The Austrian School economists of the 20^th century added two technical weapons to the armoury of anti-socialist theory. One, the so-called ‘calculation problem’, was devised by Mises. This is the proposition that, due to the lack of a market involving private ownership of the means of production (e.g. land, machines and raw materials), a socialist economy cannot arrive at correct prices, thus, rational choices would be impossible under socialism. Rejecting any objective basis underlying prices, Mises asserted that free market prices are correct by definition, as they result from the compilation, via the market, of individual subjective preferences. The claim that capitalist prices are necessarily superior to a socialist calculation of costs, which could be based on such factors as the hours of differently qualified labour involved, utilisation of raw materials of varying availability, environmental impact etc, is surely disputable. Certainly, the volatility and levels of prices under 21^st century capitalism for such items as housing and energy, or for treatment in the US health sector, are hardly straightforward evidence for the rationality of prices under capitalism.

The second anti-socialist theoretical innovation was Friedrich von Hayek's so called ‘knowledge problem’, also known as the ‘information problem’.

“For Hayek, the ultimate flaw of socialism is the fact that knowledge, in particular ‘the knowledge of the particular circumstances of time and place,’ exists only in a widely dispersed form as the personal possession of various individuals; hence, it is practically impossible to assemble and process all the actually existing knowledge within the mind of a single socialist central planner.” (12)

The fatal conundrum of this argument is pointed out by another market fundamentalist economist, Hans-Hermann Hoppe, who writes of Hayek’s theory:

“[T]his is surely an absurd thesis. First, if the centralized use of knowledge is the problem, then it is difficult to explain why there are families, clubs, and firms, or why they do not face the very same problems as socialism. Families and firms also involve central planning. The family head and the owner of the firm also make plans which bind the use other people can make of their private knowledge…Every human organization, composed as it is of distinct individuals, constantly and unavoidably makes use of decentralized knowledge. In socialism, decentralized knowledge is utilized no less than in private firms or households. As in a firm, a central plan exists under socialism; and within the constraints of this plan, the socialist workers and the firm's employees utilize their own decentralized knowledge of circumstances of time and place to implement and execute the plan… within Hayek's analytical framework, no difference between socialism and a private corporation exists. Hence, there can also be no more wrong with the former than with the latter.”

From which Professor Hoppe concludes decisively: “Clearly, Hayek's thesis regarding the central problem of socialism is nonsensical.” (13)

PLANNED ECONOMY  

Hayek’s theory is sometimes presented as being compatible with a planned economy performing strongly initially, but inevitably grinding to a halt as the range of economic processes increases, overwhelming the capacity of planners to deal with all the information.

However, this variant suffers from its own fatal flaw: it ignores the fact that, as the economy of a country (or a firm) becomes more complex, so does the technical means for planners to integrate and process the information. As an agency with relevant influence, it would have been odd if Gosplan (the USSR’s central planning committee) had not succeeded in acquiring computers for its own use when they became available in the Soviet Union, and ensuring its own priority in receiving advanced equipment. Indeed, as Russian researchers recorded,

“[I]n October 1959 the USSR Council of Ministers issued a decree on the creation of a computer center of the USSR State Planning Committee (Gosplan of the USSR) for providing calculations of the economy and planning. This computer center…existed for over 30 years, until the collapse of the Soviet Union in 1991. It was the largest civil computer center in the USSR with the advanced powerful computers (for its time) to solve a variety of planning and economic management tasks. More than 1200 specialists worked in it.” (14)

Despite such glaring issues, even left commentators regurgitate concepts from radical pro-market theory to evaluate the Soviet experience. Ben Burgis of Jacobin magazine, for example, routinely assumes that ‘information problems’ were central to the ‘failure’ of central planning in the USSR; and he remarks, “It’s easy to see why von Mises’s ideological successors believe that the economic experience of the Soviet Union and similar nations vindicated their side of this ‘socialist calculation debate’. And the painful truth is that, at least to some extent, it does.” (15)

SOCIALISM SUCCESSFUL  

But these ideological conceptions just do not fit the actual performance of 20^th century socialism. Confounding depictions of the Soviet model as ‘inefficient’, research by Professor Peter Murrell showed that, for a given level of technology, the socialist planned economies performed as well as or better than capitalist economies. (16) As one summary of Murrell’s paper related:

“First he reviewed eighteen studies of technical efficiency: the degree to which a firm produces at its own maximum technological level. Matching studies of centrally planned firms with studies that examined capitalist firms using the same methodologies, he compared the results. One paper, for example, found a 90% level of technical efficiency in capitalist firms; another using the same method found a 93% level in Soviet firms. The results continued in the same way: 84% versus 86%, 87% versus 95%, and so on. Then Murrell examined studies of allocative efficiency: the degree to which inputs are allocated among firms in a way that maximizes total output. One paper found that a fully optimal reallocation of inputs would increase total Soviet output by only 3%-4%. Another found that raising Soviet efficiency to US standards would increase its GNP by all of 2%. A third produced a range of estimates as low as 1.5%...” (17)

Soviet industrial development was also dynamic. A Rand study noted: “The annual average growth rate of Soviet GNP since 1928 [until 1985] is 4.2 percent. This clearly qualifies as a sustained growth record.” (18) Even under technology sanctions, the USSR and allied socialist countries continued for over two decades to develop faster than either the advanced capitalist powers or the capitalist developing countries. According to UN estimates, the average yearly economic growth rate for the USSR and allies was 6.7% from 1961 to 1970, with industrial production increasing annually at 8.3%. (19)

It is often conceded that under socialism, there were major improvements in human welfare, including in health and educational provision in the 1950s, ‘60s and ‘70s. Moreover, huge advancements in infrastructure and housing are undeniable - illustrated tragically in footage from Ukraine, showing destroyed power stations, dams, bridges, residential and public buildings, all constructed during the Soviet period.

Depictions of socialist economies as rigid and unresponsive to consumer needs are also belied by the factual record. The 1960s and ‘70s saw massive upgrading of sectors involved in producing for consumers in the Soviet Union, resulting in changes ranging from major increases in the protein content of people’s meals, to refrigerators and TV sets becoming standard household items. (20)

Nevertheless, by the 1970s, the technological isolation imposed on the socialist bloc, together with the diversion of resources into the arms race, was beginning to take its economic toll, the political fallout from which would lead eventually to the accession of Gorbachev and the catastrophic results of his abandonment of the Soviet planning model.

The experiences of Soviet economic development do indeed illustrate very significant issues with which any serious socialist strategy must ultimately contend. For example, the huge importance of international technology transfers in economic development, as well as the might deployed by the USA in exercising technological blackmail to maintain its domination. But they also reveal another power - the potential of social ownership and planning to build and produce for human needs.

Part 2 of this article will cover: how the 5 year plans brought prosperity to the people; myth-busting - heavy versus light industry, total factor productivity, chip war round one and market socialism; the economic paradox of peaceful coexistence; chip war round two and China's challenge to US economic blackmail.

(1) https://www.russiamatters.org/analysis/russias-defense-industry-and-its-influence-policy-stuck-redistributive-feedback-loop

(2) https://www.theguardian.com/world/2024/feb/15/rate-of-russian-military-production-worries-european-war-planners

(3) https://www.foreignaffairs.com/articles/united-states/2019-12-10/clash-capitalisms.

(4) http://glineq.blogspot.com/2021/01/on-capitalism-alone-on-occasion-of.html.

(5) https://apps.dtic.mil/dtic/tr/fulltext/u2/a220336.pdf.

(6)  https://rcc.harvard.edu/knowledge-technology-and-complexity-economic-growth.

(7) https://nap.nationalacademies.org/read/1617/chapter/16.

(8) https://hvmilner.scholar.princeton.edu/publications/technological-change-and-international-system

(9) https://crsreports.congress.gov/product/pdf/R/R47684

(10) https://oll.libertyfund.org/quote/herbert-spencer-on-human-nature-and-the-right-to-property-1851.

(11)  https://cdn.mises.org/Economic%20Calculation%20in%20the%20Socialist%20Commonwealth_Vol_2_3.pdf.

(12) https://mises.org/library/socialism-property-or-knowledge-problem.

(13) https://mises.org/library/socialism-property-or-knowledge-problem.

(14) https://ieeexplore.ieee.org/document/8400377.

(15) https://www.currentaffairs.org/2022/04/the-quest-for-red-plenty

(16) http://www.econweb.umd.edu/~murrell/articles/Can%20Neoclassical%20Economics%20Underpin%20the%20Economic%20Reform.pdf.

(17) https://jacobin.com/2012/12/the-red-and-the-black/.

(18) https://apps.dtic.mil/dtic/tr/fulltext/u2/a220336.pdf.

(19) https://www.un.org/development/desa/dpad/wp-content/uploads/sites/45/WESS_2017_ch2.pdf

(20) https://www.marxists.org/history/ussr/government/economics/statistics/growth-rates.htm.

Mikhail Gorbachev abandoned socialist planning photo by RIA Novosti

Ludwig von Mises founder of the Austrian School photo Vladimir Krupa 81

The advances which eventually made Western Europe and the USA the centres of the industrial revolution of the 19th century followed the gradual accumulation through trade, exploration, and military subjugation, of theoretical and practical discoveries from elsewhere (to say nothing of the transfer of physical wealth via the slave trade, the robbery of gold and other resources).

Cuba: building socialism photo LukaszKatlewa