Thinking

Why Did the Soviet Union Commit Suicide? Part I: Economic Stagnation

This is the first in a series of posts about the Soviet capitulation.


‘We will bury you,’ Khrushchev thundered from his UN podium in September 1960. At the time the promise seemed entirely credible. As Maddison’s data would later reveal, Soviet per capita GDP had grown at 3.3 percent in the 1950s; compared to 1.7 percent in the United States. In 1957, the Soviets had put the world’s first satellite into space and finally acquired ICBMs capable of striking American cities. Strategic parity with the United States was on the horizon. In 1956, the Hungarian uprising had been crushed and total Soviet domination of Eastern Europe assured. Communist China remained firmly in the Soviet bloc. And in 1959, the Cuban revolution had delivered a reliable ally 90 miles from the eastern seaboard of the United States.

A generation later, Soviet confidence had vanished. The Soviets had indeed achieved strategic parity; although it took a full decade. Yet, as soon as parity had been achieved Soviet economic growth ground to a halt. The stagnation made the military-fiscal burden increasingly unsustainable. Figure 1 displays the 10-year moving average of change in the natural log of Soviet per capita GDP. (So each observation captures growth in per capita income over the previous decade.)

SovietPC

Figure 1. Soviet per capita GDP growth. (Source: Maddison)

As you can see, Soviet economic growth fell off a cliff after 1973. In 1950-1973, Soviet per capita income had grown at a remarkable 3.29 percent per annum. In 1974-1985, the command-shadow economy clocked a measly 0.85 percent. Table 1 compares the Soviet performance in two periods with the US, West Germany, and France.

Table 1. Real per capita GDP growth
(Source: Maddison)
Soviet Union United States France West Germany
1950-1973 3.3% 2.4% 3.9% 4.9%
1974-1985 0.9% 1.8% 1.6% 2.0%

The slowdown was, of course, far from restricted to the Soviet Union. It was across the board. But nowhere was the stagnation quite so pronounced. Even at the peak of the postwar boom, the Soviet Union had lagged behind Western Europe; especially Germany. Now it even fell behind the United States. In the 12 years before Gorbachev’s ascent, Soviet income per head grew at half the pace of the United States. Figure 2 displays the performance of the four powers.

G4

Figure 2. Per capita income growth in the Soviet Union, the United States, France and West Germany. (Source: Maddison)

Let’s briefly note the Soviet postwar achievement in absolute terms. Since we are using 1990 international dollars, we can benchmark Soviet numbers against the World Bank’s classification from 1990. In 1950, Soviet per capita income was $2,841, right above the World Bank’s Upper Middle Income threshold. In 1960, when Khrushchev made his promise, it had risen to $3,945; by 1973, it had reached $6,059; within striking distance of the High Income level. Khrushchev had essentially promised the achievement of developed country status by 1980. If we use the 1989 thresholds, the Soviets had already achieved High Income status in 1973. But it is interesting to note that, had growth continued at the pace achieved in 1950-1973 for just seven more years, Soviet per capita income in 1980 would’ve been $7,634—above the World Bank’s 1990 threshold for a High Income country in 1990. But that was not to be. Soviet growth ground to a halt. In 1985 Soviet per capita income was $6,708.

Table 2. World Bank Classification Thresholds
1989 1990 2016
Lower Middle Income $580 $610 $1,006
Upper Middle Income $2,336 $2,465 $3,956
High Income $6,000 $7,620 $12,235

I am making such a fuss about this because I want to make a number of observations about the mid-1980s conjuncture. First, the Soviet Union was not anywhere close to being a poor country. Indeed, not only was it nearly high income, since it was dramatically more egalitarian than capitalist nations at a similar per capita income level, Soviet citizens were arguably better off than those of the latter. Second, the Stalinist system of the command-shadow economy was consolidated in the 1930s and remained virtually unchanged until Gorbachev’s reforms. That system had delivered extraordinarily high growth in the 1930s, enabled the Soviets to defeat the mighty Wehrmacht, and again delivered very high rates of growth for thirty years after the war. Any notion that it was intrinsically flawed cannot stand up to this evidence. Third, the slowdown of the 1970s characterized the entire world economy. It cannot, therefore, be entirely blamed on the ossification of the Soviet system. It was most likely the result of the exhaustion of the century of unprecedented technological advance of 1870-1970, as Robert J. Gordon argued in The Rise and Fall of American Growth

Having made these points, I’m going to walk them all back a little bit. First, in order to achieve strategic parity with the United States, the Soviets devoted an extraordinarily high proportion—roughly half—of their economy to defense and capital goods. This meant that Soviet consumers were worse off than they would’ve been with a more balanced economy. Second, the Stalinist command-shadow economy may have been less capable of dealing with a major transformation in industrial affairs. As Kotkin notes in Armageddon Averted: The Soviet Collapse, 1970-2000, the problem of obsolescence of machinery and overcapacity in the “rust-belt” industries affected all industrial nations at much the same time. But while capitalist nations managed to at least partially solve it by developing new regimes of accumulation, the Stalinist factory-based welfare and production system may have been particularly unsuited to the challenge. Third, as already noted, nowhere was the stagnation quite as pronounced as in the Soviet Union.

The bottom-line is that Soviet economic stagnation was very real. Something had to be done. Perhaps something drastic. Reforms were indeed needed. But they need not have taken a form that destabilized the Soviet empire. In order to understand how the Soviet leadership lost their self-confidence we must interrogate their understanding of the malaise. In Part II, we shall see that the economic stagnation was only the backdrop of a profound spiritual crisis among the Soviet elite.

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One thought on “Why Did the Soviet Union Commit Suicide? Part I: Economic Stagnation

  1. daniel berg says:

    . First, the Soviet Union was not anywhere close to being a poor country. Indeed, not only was it nearly high income, since it was dramatically more egalitarian than capitalist nations at a similar per capita income level, Soviet citizens were arguably better off than those of the latter.”

    are you sure you dont want to walk this assertion back a few more paces?

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