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Communist economic systems self-implode. Today it has been recognized that Communism 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 despite this, the Soviet Union 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
There's plenty of dispute. Please cull your screed. – Samuel Russell Mar 30 '15 at 22:34
Uh, because they were looting all the countries they conquered in World War II? – Tyler Durden Apr 29 '15 at 14:50
up vote 20 down vote accepted

The USSR growth rate during the 50's was not exceptionally high. The claims of more than 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 4-7% depending on time period and who is doing the estimation.

This can be compared to average OECD and average global growth during the same period at 4%.

As for the implied question of why they didn't do as badly as they did later (and earlier) the answer is that the 50's and early 60's 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.

It is also worth remembering that high growth is easier when you start from a low position. See for example at China's development after they embraced capitalism.

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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
+1. I really doubt the claim about relative economic freedom. Gosplan still existed, and after 1957 the plans became less disconnected from reality. "Labour productivity" as bizarre as it may sound to some is more likely (Haraszti, A Worker in a Worker's State), largely in the erosion of secondary benefits for workers leading to more hours exerted towards plan. Combine this with the capital stock of 1914 finally being modernised by replacement and the growth is explicable. Between 1929 and 1945 "economic freedom" existed through universal management perogative, unbound by plan. – Samuel Russell Mar 30 '15 at 22:40

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
1914 Russian Empire is often used as a base rate to construct "illusory" growth. Given the different ruling class investment and consumption preferences, the radical changes in consumption, I'm not sure what a good relativity is though. Accurate coal tonnage produced and imported might be a relevant one? More trustworthy than the money-as-capital price series inside the Soviet Union. – Samuel Russell Mar 30 '15 at 22:42

An excellent example of how the perception of economic growth was created in Khruschev's times is Ryazan miracle. Actually, the Wikipedia article doesn't do justice to the severity of both the negative economic impact and the spread of fraud.

The briefest digest: the governor promised to triple Ryazan's meat production in a year, and in order to meet the target he slaughtered all animals in the regions, including young calfs and milk producing cows, expropriated all private animals, and purchased meat from neighboring regions at market price to sell to the government at wholesale price. The region was devastated; the governor was awarded. Because of widespread fraud and devastation of agriculture across USSR the very next year the whole country was on the brink of hunger and Khruschev had to - for the 1st time in USSR history - purchase grain abroad. Not that it was the 1st food shortage - for example, hunger 1929-1933 was much much much worse - but at that time Stalin refused to import grain and simply let millions starve to death.

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There was a lot of the grain in the country in 1932/33. The harvest was high and derfinitely a lot higher than in the wartime, when there was no hunger. – Anixx Mar 31 '15 at 8:54
@Anixx: the famine of 1929-1933 was caused by Stalin's "collectivization" and "industrialization" policies, not by the harvest. "Collectivization" amounted to stealing the entire harvest from the peasants to force the survivors into perpetual serfdom within "collective farms". During that time approx 10 million have died from artificially induced famine. The collected grain was exported to purchase industrial equipment. "Industrialization" amounted to enslaving large portion of population on trumped up charges and working them to death at large construction projects. 16 more million died there – Michael Apr 3 '15 at 16:08

According to my university lecturer* all those years ago, the main problem was not propaganda, it was accounting errors. In advanced economies, they would use value-addedd accounting. For instance, if one factory assembled a car, this would be recorded as them creating (say) £2000. If they sent it to another factory and they painted the car and increased its value to £2500, this would be counted as £2000 + £500 = £2500. In the USSR this would be counted as £2000 + £2500 = £4500.

*I don't have a reference but the fellow's name was Gareth Pritchard.

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Those aren't accounting errors - they are fraud, plain and simple. Even Communist Party members are usually capable of both subtraction and addition. Interesting rationale though for the propaganda. I guess in the USSR they were so desperate for good news that they didn't look the gift horse in the mouth. – Pieter Geerkens Mar 29 '15 at 19:08
I don't disagree there was a strong element of mendacity: just that we know now that the Soviets weren't the evil geniuses depicted by American propaganda of the 50s and 80s. The evil part was accurate, if imprecise. The genius part was, well, over-generous. – Ne Mo Mar 31 '15 at 14:27
Advanced economies would say that's creating £2000? I hope not. I hope they consider that the cost of purchasing and transporting the steel to make that car, as well as the labor to assemble it, cost them (say) £1000. The difference in price would go to the salesman and CEO. At least, I really really hope this is what advanced economics would teach. – DrZ214 Aug 5 '15 at 1:51

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