Russia has been one of Europe's and the world's greatest military and economic powerhouses since Petro the Great. But why so, and how was Russia, or the Soviet Union, able to project such an economic power while struggling with socioeconomic problems? We will try to answer these questions by diving some major socioeconomic events and the sets of economic data of that time into narrower parts. Before we begin, we would like to remind you this essay does not argue that the events we will mention always directly impact the following set of data mentioned. Our aim is to summarize the socioeconomic events usually, but not necessarily, affecting the data we will be following throughout this article. We would also like to remind you that while the sets of data we will be using is claimed to be valid, there might be a significant rate of deflection due to the authoritarian and corrupt nature of the Soviet Union, especially among the tolkachi.
Now, in order to understand the causality of the events that occurred during the communist regime and the Russian Revolution, we need to dive into Imperial Russia and its socioeconomic status. However, we will not examine the Russian expansion into Siberia and the pre-20th century era due to the limited amount of resources and data.
Serfdom
Serfdom can be defined as a form of forced labor like slavery. Unlike slavery, however, serfdom defines serfs as peasants and citizenz. On the other hand, a slave is not defined as a human, but as a labor- capital, like an industrial machine. First introduced in the Tsardom of Russia in the 16th century, serfdom had continued its existence after the foundation of the Russian Empire. Even though the living standards of the serfs improved a bit as time progressed, serfdom was not abolished until 1861. Moreover, even after its removal, the Tsar introduced the redemption payment, where the serfs had to pay 49 years of their lives as forced labor to satisfy the landlords. Yet, as a result, nothing substantial changed in serfs' lives, as they were still used as forced labor until 1907. However, American Economic Review studies found that the abolition of serfdom in 1861 positively affected the economy and labor force. Regardless of that, the Russian working class and peasants barely recovered from serfdom, as the autocratic capitalist economy of the Russian economy could not enhance their living standards until the Russian Civil War.
An Autocratic Empire
Russia was not able to industrialize as fast as the other Western powers. There are many reasons for this, as well as many consequences. The first reason is serfdom, as we mentioned previously. Having low consumption byagricultural and peasant workforce, low-none-wage non-class made any free market society out of the question due to the lack of demand for consumer goods. The populace also suffered from agricultural famines, such as the 1891-1892 famine. Within the serfdom comes the need for the people's popular sovereignty, which was non-existent until the 1905 revolution. Russian people could not decide on the country's ruling and government, unlike the Western powers of the time, which mainly were parliamentary monarchies or democratic republics. This meant any monetary, industrial, institutional, or fiscal reform had to be done by the Tsar/monarch, who did not care or have the capability to do these reforms. As a result, the Russian Empire entered the 1900s as a backward society with low living standards, unrecognized civil rights for the populace and the many ethnicities it had within, as, well as a natural corruption in the palace of the Tsar.
The Great War and the Russian Civil War
Russia was not ready for war. By the time the Civil War began, Russians had already fought and lost a war against the Japanese in 1904. Russia lacked the industrial capacity to challenge the capabilities of the German Empire. The Russian army was ill-equipped to sustain a prolonged war. They had shortages of food and fuel that led to inflation. They had a lack of infrastructure and industrial development. After the mobilization of the masses, a labor shortage crisis emerged. All of these, combined with the social inequality in Russia, led to social unrest and a public demand for withdrawal from the war. As a result of the war, agriculture and industry took a heavy toll. All of these led to the Russian Revolution of 1917. Russian Revolution was a duology of revolutions, one in February 1917 and one in October 1917, which led to a civil war between 1917 and 1923. Union of Soviet Socialist Republics, a vanguardist totalitarian revolutionary communist state, emerged as the victor of the civil war under the leadership of Vladimir Lenin, who promised the people “Peace, Land and Bread”.
NEP Years
Before 1921, during the civil war years, the Russian economy was completely disintegrated from its previous financial and monetary system, which led to a natural economy of hers until Vladimir Lenin proposed the New Economic Policy (NEP) as a temporary market socialist solution to ongoing famines and crisis within Socialist Russia and as an end to “war communism”. NEP was implemented by the Soviet government in 1921. The NEP introduced some exciting aspects, such as partial decentralization of the economy by deregulation, which led to private enterprise and market mechanisms in specific sectors of the economy like light industry, trade, and agriculture. A group of small businessmen emerged called “NEPmen,” who were permitted to operate in the market, while peasants were allowed to own and sell their surplus agricultural goods. State-mandated and private enterprises coexisted during the area of NEP, creating classical supply and demand market mechanics in the economy. NEP was primarily focused on agriculture, with private property being allowed and tax deductions as state-mandated agriculture had met significant opposition during the Civil War, which troubled the government. The labor code of 1922 allowed labor to be sold as a wage, thus, allowing citizens to spend money on the market and create demand. In 1924, a decree was passed allowing land to be leased and paid labor to be hired. It is also worth mentioning that the central government heavily regulated state-mandated enterprises. In the end, NEP was a mixed economic system with both private and state enterprises in Soviet Russia. Here is a table that shows the distribution of the light industrial sector:
The NEP can be divided into four sections: 1924-5, price controls and monetary growth; 1925-26, temporary stabilization; 1926-27, renewed inflation and 1927-28; abandoning market practices. The macroeconomic decisions were primarily made by the Bolsheviks and the economists appointed to run the central bank and the Commissariat of Finance. The NEP was successful in putting an end to the peasant riots and developing the agricultural sector. By 1928, the farm production had recovered and surpassed pre-war 1914 quotas. NEP allowed for international and foreign trade, as well as investments abroad. The government monopoly banks “Gosbank” had managed to handle the inflationary crisis of the civil war and the great war, and, as a result, they had a free space to move in front of them. After the stabilization of the ruble in 1924, the Gosbank started giving extensive loans to industrial entrepreneurs like NEPmen, which allowed for the industrial sector to grow by 60% in that year alone, surpassing expectations by 200%. From 1924 to 1926, the circulation of banknotes increased by one and a half, while Gosbank's liabilities grew, and the value of bank accounts tripled.
Loans and discounts on the balance sheet have tripled like the liabilities. More than half of the loans had been given to state enterprises in 1924. The state had an extensive intervention and rule in the economy. For example, in 1926, out of the total produced consumer goods, 57.4% were taken over by the state, 32.5% by co-operatives, and only 10.1% by the private sector. The private sector had a declining role in trade throughout the NEP. Here is a table for us to follow the growth of the industrial sector throughout the NEP by labor force and by rubbles:
In the end, the NEP successfully developed the agriculture sector and created a capital inflow from international trade while having partial successes in light industrial sector development.
The Great Break
The Great Break is a turning point in Soviet economic policies after the death of Lenin and the sovereignty of Stalin between 1928-29. After Stalin’s rise to power, a wave of collectivization and industrialization came. The NEP was abolished, and the USSR began adopting five-year plans for industrialization and collectivization.
The five-year plans are a series of central economic plans that are used to control the economy. There have been three five-year plans until the Second World War. Between 1928 and 1940, industrial workers in the USSR rose from 4.6 million to 12.6 million. Five-year plans had a significant impact on heavy industry, and almost %90 of all investments in the sector were made to heavy industry. However, all of this came with a great price, as the collectivization had put a tremendous strain on agriculture and caused massive famines.
The Five-Year Plans and Industrialization (1928-1941)
The first five-year plan began on 1 October 1928, with the plan to last until the end of December 1932.
The first five-year plan focused on rapid industrialization, primarily on heavy industry such as steel, coal, and heavy machinery production. For the five-year plans, Stalin and the Soviet government entertained propaganda for the working class, comparing industrial advancement to a battle and using terms like “front” and “breakthrough”. The plan had aimed to increase industrial output by putting high industrial quotas, such as growing the industrial output by 93% for the first five-year plan, on state enterprises and punishing those who couldn't meet the requirements. And thus began the era of tolkachi. Tolkachi are middlemen between the state enterprises and the politburo. They manipulated and overestimated their factories and enterprises to satisfy Stalin. While the reports for the industrial growth is 103.4% for the first five years, these rates and statistics are often questioned. Here is a chart of the five-year plan results reported to the Gosplan.
However, due to the massive amount of resources located in the industrial sector, famines and food shortages occurred throughout the entirety of the USSR, which led to a further bigger famine when Stalin ordered the collectivization of farms and agricultural areas in Ukraine for more resources to be diverted to the industrial sector. The farmers and the peasants refused, and then the government took their goods and forcefully removed them from their land. After this incident, Stalin ordered Ukraine to be isolated from punishing them, which led to a massive famine called “Holodomor.” Holodomor took the lives of an estimated 6 million Ukrainians.
Above you see another table that follows the economic development of the USSR in terms of currency. While the first five-year plan succeeded, the legacy of corruption and famine it has created has followed the continuing five-year plans. The Soviet Union had entertained two more five-year plans between 1933-1938 and 1939-1941 (cut short by the Great Patriotic War), which further developed the industry of the USSR in sectors like chemical, electricity, and transportation. While the third five-year plan was cut short by a war against Germany, the USSR entertained more five-year plans after the war until the 1980s. While it contributed to the development of the industrial sector, many economists and experts criticize the five-year plans for being inefficient and, perhaps, violent.
References
Timoshenko, Vladimir P. Agricultural Russia and the Wheat Problem. Stanford, CA: Food Research Institute, Stanford University, 1932, s. 86.
Himmer, Robert. "The Transition from War Communism to the New Economic Policy: An Analysis of Stalin's Views". Russian Review, Ekim 1994.
Bandera, V.N. "The New Economic Policy (NEP) as an Economic System". Journal of Political Economy, Cilt 71, Sayı 3, Haziran 1963, s. 265-279.
Johnson, Simon ve Peter Temin. "Macroeconomics of NEP". The Economic History Review, Yeni Seri, Cilt 46, Sayı 4, Kasım 1993, s. 750-767.
Miller, Margaret S. "Taxation in Soviet Russia: I". The Slavonic Review, Cilt 4, Sayı 10, Haziran 1925, s. 124-136.
Miller, Margaret S. "Taxation in Soviet Russia: II". The Slavonic Review, Cilt 4, Sayı 11, Aralık 1925, s. 418-432.
Waller, Sally. Tsarist and Communist Russia 1855–1964. Oxford: Oxford University Press, 2015, s. 266.
Waller, Sally. Tsarist and Communist Russia 1855–1964. Oxford: Oxford University Press, 2015, s. 211.
Ledeneva, Alena V. How Russia Really Works: The Informal Practices That Shaped Post-Soviet Politics and Business. Cornell University Press, 2013.
Fitzpatrick. The Russian Revolution, s. 96.
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