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Communist economic systems self-implode. Communism today has been recognized that it is bad for economic progress. There is no dispute that Communism makes countries poor based on what has happened in recent history.

However, what is puzzling was that the Soviet Union despite this enjoyed fast economic growth in the 1950's and 1960's. Why was this so?

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Please provide evidence to back the assertion that the Soviet Union grew in the 1950's. Please demonstrate preliminary research. –  Mark C. Wallace Jul 8 '14 at 18:28

3 Answers 3

up vote 12 down vote accepted

The USSR growth rate during the 50's was not exceptionally high. The claims of 5-10% growth, although certainly theoretically possible, were simply not true, but Soviet propaganda. Real growth rates during the 50's and 60's were rather 3-4%, with an average of 3.4%.

This is lower than both average OECD and average global growth during the same period at4%. So, the only thing the communist countries did "right" was propaganda.

As for the implied question of why they didn't do even worse the answer is that this in the Soviet Union was a period that saw:

  1. Post-war rebuilding.
  2. A focus on building production capacity.
  3. Relative economic freedom.

The last point is always a last resort of communist planners when the socialist theories fail to work in reality, and that seems to have been the case here too under Stalin. But in this case the relative liberalism also continued as a part of the liberal anti-Stalinist reaction following Stalin's death. This is why we see the growth slowing down and finally stagnating completely under Brezjnev.

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Thanks for the answer. The CIA report at the link below mentioned that the Soviet Union grew faster than the US from mid 1960s to mid 1970s. No mention was made about the 1950s. I will modify the question accordinly. foia.cia.gov/sites/default/files/document_conversions/89801/… –  curious Oct 27 '13 at 8:22
@curious That paper is from 1985. The economic data it it is largely based on Soviet claims. These claims were essentially lies. –  Lennart Regebro Oct 27 '13 at 8:30
Then the question should be deleted if the whole premise is wrong to avoid misleading readers. Unfortunately, I cannot delete the question once an answer appears. Let me see how I can rephrase to save the question. –  curious Oct 27 '13 at 8:32
Just saw your edit. Thanks. Saved me the trouble. –  curious Oct 27 '13 at 8:34

Nearly all countries grew quickly in the 1950s and 1960s for pretty much the same reasons. That applies to the United States, Britain, Germany, Japan, most of the rest of Europe, major parts of Asia, certain (but not all) parts of Africa.

World War II ravaged the industrial and production base of most of its participants (except those in North and South America), while killing a large number of people. At the same time, the "hot house" atmosphere of the war spurred a lot of technological innovation.

So you had a large base of intellectual capital (numerator) applied to an artificially low base of physical capital and people (denominator). The combination of a large numerator and a small denominator made for a high growth rate.

It was a great tragedy for those who were killed. But the survivors (and their Baby Boom children) did very well after the war.

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To add to the Lennart's answer, capital investment affects economic growth the most when the current capital level is low (see, e.g., Mankiw, "Macroeconomics", chapter 4, appendix). This is why all economies experience spectacular rates of growth during early stages of industrialization. USSR was devastated by WW2, so its capital investment paid handsomely - the normal communist stagnation was postponed by two decades.

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Bonus points if you can use the broken window theory to show why the dramatic rates of growth are even more illusory. –  Mark C. Wallace Jul 8 '14 at 18:29

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