We Underestimate how Awful the USSR was

Recently on Twitter I did a thread about how truly awful the USSR was. I wanted to show how insane the USSR was and explain why. For as bad as we think the USSR was, it was much much worse. It was shockingly bad. Talking about the political repression and shortages of consumer goods fails to capture just how grim it was. The party planned and controlled everything and everyone’s life revolved around fulfilling that plan.

The following details come from the notes I took for Russian Economic Transition with Dr. Richard Ericson. Dr. Ericson must be one of the foremost experts on the Soviet economy left and the depth of his knowledge made it one of the most impactful classes I took in college. 

Apologies in advance. Some areas are choppy. 

The USSR can also be broken into two periods. The period from 1917 until 1921 was defined by chaos while the Bolsheviks attempted to implement “war communism”. 1922 until 1991 is the period of the command economy. 

War communism abolished private trade, nationalized business, took over the food supply, and militarized labor. Economic life was “naturalized” as money was abolished and replaced with barter. War communism was also a fan of arbitrary terror and expropriation. The first Soviet secret police was also set up. War communism was “a forced march into the future”. The march was a disaster. By 1921 90% of all legal and illegal activity that took place in 1917 stopped. This won’t shock anyone but there was a massive famine. By the end of this period peasant uprisings became a regular thing. Mass strikes. Killing Bolsheviks. The Kronstadt Rebellion was the peak of this uprising. 

War communism eventually gave way to the New Economic Policy which stated the period of the command economy. The NEP is characterized by: 

1. Eliminating the arbitrariness and terror from the economy 

2. Removing many economic constraints 

3. Retaining the commanding heights of the economy 

The NEP saw the return of money, prices, small business and private trade. People who took advantage of this were called Nepmen. The state still had monopolies in banking, finance, and international trade. Eventually Lenin died, Stalin took over, and dissatisfaction from the Bolshiveks led to the end of the NEP and a doubling down on the command economy. 

At this point I should make clear what the command economy is. Command economies are characterized by:

1. Little local autonomy 

2. High degree of centralization 

3. Money and prices are only for accounting 

4. Hierarchical organization with vertical relations. 

5. Directive central planning 

6. Information monopolized 

This structure is almost the point-by-point opposite of the market economy. 

I think it’s telling that one of the first notes on Stalin’s leftword economic shift is “eliminated peasant opposition by executing those with excess grain.” Seems on brand. 

This leftward shift is known as the “Great Socialist Offensive”. The goal was to develop the economy through forced collectivization and the first five year plan. It ended up killing 10-20 million with others sent to camps in Siberia.  

The Soviet system ran under “dual subordination”. Everything answered to functional superior and party superior. When people say the USSR was a one party state that really undersells it. People were not just given one option to choose from in sham elections. That party was literally baked into the government. It would be one thing if your only choices in congressional elections were between Republican 1 and Republican 2. It’s another if Congress didn’t even have any power and whoever led the Republican party was automatically President. That’s the USSR. 

But that still undersells it. The party had control of all unions and workers groups. All social groups outside the party were eliminated. Civil society was effectively criminalized. The party not only had control of the government, it had control of your day to day life. 

The logic of the Soviet system was simple enough:

1. Simplification through aggregation

2. Structure though hierarchy 

3. Bounded rationality that limited decision making 

To give you a sense of the control, there were ~45,000 firms in the USSR. At the same time, there were 8-9 million in the US.  

The Soviet system intentionally separated the knowledge of the situation, motivation, the authority to act, and access to the resources to act. The plan assumed people are robots but they aren’t.

At this time, there were still prices but they again were irrelevant to economic decision making. 

The economy was planned in every way possible. Across time—there were five year plans and operation plans as limited as 10 day plans. Space and scope. Branch and sector. And function. The only thing that wasn’t planned was the household. The government told your factory what to produce in a one year plan. It was a crime to violate that one year plan. 

Implementation behaviors can be grouped into 4 categories. 

1. Implementing superiors priorities. 

2. Never overperform 

3. “Storming” 

4. Buffer and build material reserves 

This structure leads to workers having the incentive to do what they were told and only that. Both overproduction and underproduction were terrible ideas for workers. 

If a factory was told to produce 10 tanks but produced 13 instead because of some one time fluke, then they would be expected to match that going forward. This is known as the ratchet effect. The ratchet affects the increase of assignments if you overperformed. Because of this factories never wanted to over perform. 

Similarly, if they were only to build 10 tanks but only had the resources for 7 tanks they would build 10 anyway. Sure they might have wooden floors but the plan was met. 

Remember when I said people weren’t robots? The fact they aren’t didn’t stop the expectation for them to be. They would also go all out to meet this plan even if it meant working as much as humanly possible. This was known as storming. 

Because factories never over performed even if they could and because they always had to meet the plan, factories would save material resources and build reserves in case they had to meet a target but lacked the resources. 

These problems were exhausted by the lack of clear metrics of success. For example, if nails were planned by weight then factories emphasized large nails. If they were planned by quantity, then there was an emphasis on small nails. 

One area where some freedom was allowed was in the Kolkhozy’s. Families were allowed ~2 acres, 1 cow or similar animal, plus sheep and chicken. If I recall correctly, these farms produced something like 90% of Soviet agriculture output. 

This won’t shock anyone but consumer goods were never a priority. But don’t worry, the military way. 

The Soviets also believed inflation was a capitalist phenomenon, but inflation didn’t care. “Repressed inflation” came in the form of shortages and a second economy. The Soviets believed it was fairer to wait in line than raise prices. At one point, ~20% of the hours of a Moscow family were spent in line. The second economy was the black market.

The Soviet system can be described as “effective but not efficient”. It achieved its goals through brute force. To fix this there was a “treadmill of reforms”, but they always got shut down. 

The USSR was comparable to Italy and Greece in the 60s but was left behind by them. The Minimum satisfaction level was the Marxian minimum level to reproduce (40% of the base wage). 33% of the population was below in 1974. But don’t worry, the elites did well. Advantages the elites had:

1. Cars and driver 

2. Special healthcare 

3. Foreign travel 

4. Multiple houses 

Pre WW2 the USSR practiced autarky but realized some trade was necessary after the war. If they couldn’t develop it they would import it. Often machines in factories were imported from the west– they made up 34% of imports. But because they didn’t know how to maintain and repair this equipment it was often ruined. It was so bad that much of former Soviet industry was value *destroying* by the 1990s.  Goods produced were so useless they couldn’t even cover costs. 

To give a final example of the insanity of the Soviet Union, outside the USSR there were 2 factories in the arctic circle when the regime fell. There were 72 in the USSR. The energy costs alone made everything except mining economically unviable. 

Lastly, here are some Tweets about the awfulness of communism in general. 

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