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Economic History

SOCIALISM AND DEVELOPMENT


THE CASE OF THE SOVIET UNION

Guillermo Ortega Ortiz (100318585)


University Carlos III of Madrid
Double Degree Law & Economics
100318585@alumnos.uc3m.es

Economic History

SOCIALISM AND DEVELOPMENT


THE CASE OF THE SOVIET UNION

A. INTRODUCTION
The events in October 25, 1917 in Petrograd produced as a result the emergence
of a new ideology, which from barely a century was seen as in direct opposition to the
current capitalist system. From the thesis of Marx and Engels to the European social
democrat trends or the new Asian model, socialism has proved to be an alternative to
traditional liberal policies. History shows that, with varying degrees of success, these
principles can be implemented as a form of economic and social organization but, to what
extent can socialism be considered in relation to the development of nations? The
purpose of the following lines is offered to contextualize socialist theories in the various
models that recent history has provided, with particular reference to the economic
policies undertaken by the USSR.
1. Concept of Socialism
Prior to the analysis of the most representative case of socialism in the history
of the twentieth century is necessary to establish a definition of the term. In his work
"Socialism: Utopian and Scientific", Friedrich Engels defines socialism as "the direct
product of the recognition, on the one hand, of the class antagonisms existing in the
society of today between proprietors and non-proprietors, between capitalists and
wage-workers; on the other hand, of the anarchy existing in production" 1. Under
socialism, the state owns the means of production and sets out interventionist policies
in social and economic matters. Karl Marx asserts in the Communist Manifesto that
"the history of all hitherto existing society is the history of class struggles"2, implying
that socialism is an intermediate stage in the achievement of a communist state whose
goal is the elimination of the class struggle and the abolition of private property to
favor a fairer, more equitable distribution of wealth. The definition of socialism has
changed in the course of recent history, but it essentially retains its main principles and
objectives.
2. Definitions of development
Development and progress of any society can be understood under two
perspectives: first, economic development refers to the ability of nations to create
wealth and manage their resources efficiently, and secondly, human development is
understood as the evolution of society in terms of health, living standards, life
expectancy, education and basic rights, and its extension to the whole society.
Quantitatively, economic development uses indicators such as GDP, inflation,
investment in technology or exports and imports. Meanwhile, human development
gets reflected in school enrollment rates and access to basic health and social services,
and in per capita GDP as a measure of living standards.


1 ENGELS, F. (1880): Socialism: Utopian and Scientific
2 MARX, K. (1848): Manifest der Kommunistischen Partei

B. THE USSR CASE


Since the proclamation of the Soviet socialist state in 1923 the development of the
USSR framed in the Marxist-Leninist theory about the ownership of the means of
production by the state. The Gosplan or State Planning Committee sat the objectives and
guidelines for every federated socialist republic in economics, resulting in the
development of policies aimed to develop a long time stagnated Russia under the roots of
the Ancien Rgime. The fact that Russia managed to transform the agricultural-based
structure of the country into a booming industrial world economy calls for a study on
how the Soviet economy, according to planified socialist models, managed to be effective
apart from the prevailing capitalist thesis. 

1. The NEP
Despite the initial instability driven by the two precedent wars the First World
War and the Russian Civil War, the USSR achieved to establish, in 1921, the New
Economic Policy. Devised by Lenin as a kind of state capitalism directed to create the
basis for the subsequent socialist economy, the NEP replaced the previous war
communism allowing the emergence of the private sector to modernize the backward
economy that Russia inherited from the Tsarist period. To achieve industrialization the
NEP suggested an intense remodeling of the agricultural sector traditionally victim of
severe crises stopping both collectivization and nationalization of land and the
mechanisms of economic control. Free market was allowed, but strategic sectors
remained under state ownership. This mixed system produced results that led to a
dramatic increase in production, especially in agriculture, and economic dynamism
was recovered from the effects of previous wars. In the labor sphere the NEP also
resulted a breakthrough with the enactment, in 1922, of the Labor Code, which fixed a
minimum wage and established new rights for workers. However, this "openness" to
the free market produced adverse effects such as speculation, inequality between rich
and poor people and a growing opposition from some sectors of government

criticizing the capitalist outlook that the economy was gaining. In addition, the
industry was not developing at the expected rate. The crisis of the scissors, the
disparity between prices of agricultural and industrial products, demographic pressure,
scarcity episodes and a growing social opposition, especially in the bourgeoisie,
required the establishment of a new model.

2. The Five-Year Plans


Coinciding with the progressive increase of the figure of Stalin in the Soviet
Union, in 1928 took effect the first of the Five-Year Plans. Its goals are defined as
clearly as ambitious way: the measure of the industrial economy, initially valued in
8,000 million rubles should be tripled to 25,000 million rubles in 19333. The results,
although partially completed, were satisfactory: the construction of industrial
machinery sector far exceeds the wanted increased of 330%3; the electrification grew
by 136% over the planned aims, and oil production by 102%3. However, other sectors
such as coal and steel production or smelting, although expanding, did not rush the
expected results. While the interwar crisis devastated the capitalist economies, the
Soviet Union surprised the world with unparalleled growth rates. The second FiveYear Plan reached all forecasts with growth figures of 390%3 in metallurgy and 690%3
in the steel sector. The industrial model aimed to create a large and complex industrial
structure in a set of actions known as industrial gigantism which equaled in size to
the largest American factories. The advent of World War II, with the militaristic
aspirations of Nazi Germany, forced the Soviet industry to focus their efforts on
expanding their weaponry and army, resulting in a reduction in the volume of
production of other sectors and a shortage of labor motivated by the enlistment of
troops. Both the rearmament and the reconstruction after the Great Patriotic War were
a challenge to the Soviet economy, which nevertheless managed to recover. The last
two Five-Year Plans of Stalin's regime between 1945 and 1955, positioned the already


3 CROUZET, M.: Histoire gnrale des Civilisations (vol. VI)

industrial power in the race for leadership against the United States. The results of the
Five-Year plans of the Stalinist period were materialized in a year-on-year average
GDP growth of 15% between 1928 and 1947, a prodigious 23% between 1948 and
1951 and a 10% since 1952 compared to the 4% of the U.S. GDP, or the French which
was only 2%.

3. Commercial institutions
About the institutional development, in addition to the role of the Gosplan,
there were several organizations of trade between countries of the communist orbit.
Similarly to the OECD, the COMECON, also known as CAME (Council for Mutual
Economic Assistance, 1949), was aimed at promoting trade between socialist
countries. Although trade was in the hands of the State, this latter together with
cooperatives and industrial companies were free to buy and sell products. Foreign
trade was subject to the state and the USSR were represented abroad by
commissioners.

4. Human development
Undoubtedly, the area in which the USSR reached its most remarkable success
is the relative to social welfare and basic services and rights for Soviet citizens. In
education, almost total literacy was achieved: while in 1917 illiteracy rates were over
75%4, in 1940 this phenomenon had disappeared and the entire population had access
to free education. Instruction was mainly oriented to the labor, and only a 20% of the
students reached college. Medical care was also universal and free, being the USSR
pioneer in this aspect. In 1960 life expectancy is higher than the U.S. Regarding the
distribution of wealth, commodities such as food and housing were subsidized by the
State and poverty was almost nonexistent. Minimum wages were fixed, and the
income was distributed under criteria of qualification, being possible to get bonuses
for productivity or work quality. The evolution of household incomes is such that
between each Five-Year Plan the average income doubled. Job security was
guaranteed, and there was full employment. In technology, economic growth made
possible a huge development of research, primarily represented by the aerospace
competition in which it faced the United States potential. On the cultural side,
although Stalin's dictatorship somehow restricted artistic creation, it was relatively free
unless it opposed the regime.

5. Decline of the USSR


 fter the death of Stalin, successive governments experienced a decline that
A
was responsible for its dissolution in 1991. The governments of Nikita Khrushchev,
Leonid Brezhnev, Andropov, Chernenko and Gorbachev had to deal with economic
difficulties and conflicts in the international context of the Cold War against the
Western Bloc countries after the end of World War II. The steel and oil sectors
declined since 1980, and the agricultural sector was still inefficient despite its high
degree of mechanization. The technological sector lost its dynamism, and military
expenditure of the last two decades damaged the economy. In this situation, the
government of Mikhail Gorbachev launched a series of measures to modify the rules
of the socialist economy, a fact that led to the disappearance of the Soviet Union on
December 25, 1991, yielding to the pressures of capitalism.

4 FARQUHAR PAYSON, W. (1933): Russia U.S.S.R.: A Complete Handbook. (p. 665)

C. CONCLUSIONS
 The social, economic and historical circumstances in which socialism was
immersed throughout the nineteenth century have led to its negative assessment today. For
over five decades the ideological manipulation around the real communist system has led
to its perception as a non-feasible alternative to the omnipotence of capital. Yet history has
shown that in economic history socialism, as conceived in the USSR, is viable as long as
the organization is appropriate. No country has achieved such drastic industrialization
levels as the Soviet state experienced, which transformed itself from being an agricultural
and social backward state, to become one of the leading world great powers and a
paradigm of social assistance. The answer to the moral and ideological criticism against
the socialist state would require a deeper philosophical reflection about ethics, human life
or liberty. But it is clear that in terms of economic and human development, figures and
historical evidences prove the feasibility of an ideology comparable to capitalist countries
in terms of growth. Nowadays, socialism finds two main fronts of expression: first, the
Chinese economic model has proven to be a synthesis in the practice of the virtues of
capitalism within a socialist system; despite its many conflicts, it is responsible for the
rapid rise of China in the international arena. On the other hand, social democracy appears
as an option within liberal socialist constitutively States, and has proven to be responsible,
especially in Europe, for the introduction of the well-known welfare state that provides
citizens protection against the depredations of the current economic system.
But as capitalism is not perfect in any sense, socialism is not, neither. There is an
important, subjective conflict about what human beings understand as a good living
standard, and while for many success, competitiveness and wealth is the key for happiness,
others see how individual development, intellectual values or fraternity are behind the real
sense of life. In a conciliatory and neutral position, halfway between both theories, it
would be safe to say that capitalism, with its voracious nature, is very effective in creating
wealth since it protects private property and initiative, but when analyzing human
development there is a remarkable gap between liberal and socialist economies since the
latter focuses on the welfare of citizens and their economic security as prerequisites for the
development of people as human beings.

BIBLIOGRAPHY
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