Perestroika and the future of socialism - part 2

Monthly Review, April, 1990

Problems relating to the production of raw materials are matched by others no less serious on the side of their utilization. Comparative international statistics strongly suggest that there is a great deal of waste and inefficiency in the use of material inputs in the Soviet Union. Howe else explain why the Soviet Union, with a much smaller industrial output than the United States, produces twice as much steel and consumes about 10 percent more electricity in industry? Equally puzzling is the situation in agriculture where the Soviet Union with a much smaller total output than the United States turns out about 80 percent more mineral fertilizer and at least three times as many tractors. These are only a few examples among many that could be cited: they point to the conclusion that Soviet planning practice from the beginning was focused on expanding production in the various separate sectors of the economy without paying adequate attention to their necessary interrelations.

Among the "laws of socialism" enshrined in Soviet textbooks was the supposed necessity to expand production of the means of production more rapidly than the means of consumption. It is therefore not surprising that planners, when faced with increasing problems of labor and material supplies, should seek a way out through expanding production in plant and equipment. Whatever the problem, more investment in means of production was the solution.

The trouble with this is that it flew in the face of experience dating back at least as far as the 1960s. As Moshe Lewin, one of the West's most insightful historians of the Soviet period, pointed out in 1974:

Unnoticed for some time [in official circles] were those self-defeating features in the economic mechanism that had appeared in the early 1960s. Growing means devoted to accumulation and investment ironically led to falling returns on investment and a dwindling growth rate. . . . Research showed that the growing cost of the operation slowed down the whole process, and that the strategies employed had become blatantly counterproductive and urgently needed revision. The unilateral devotion to priority of investment in heavy industry, which was supposed to be the main secret of success, together with huge injections of labor force and coercive political pressure, appeared as factors in this slowdown. Yet dogmas and the practices behind them were tenacious. Heavy industry still continued to be lavishly pampered, at the expense of consumption, with relatively more products serving heavy industry rather than benefiting consumption. "Production for production's sake" certainly expressed the position of the Soviet economy, and neither the standard of living nor the national income adequately benefited from it. (Moshe Lewin, Political Undercurrents in Soviet Economic Debates, Princeton: Princeton University Press, 1974, pp. 132-33)

One of the most serious consequences of investing in new plant and equipment as a remedy for all ills was neglect of existing industry. Normally, as an economy becomes industrialized, a larger and larger proportion of its capital investment is used to replace worn-out equipment. Because of the strong emphasis on creating additional capacity, this generalization does not apply to the Soviet Union, where on the average only about 2 percent of machinery and equipment has been replaced each year. "Under these circumstances," according to Leonid Abalkin, "it would take 40 years to completely modernize [machinery and equipment] in industry, and in the engineering [and metal-working] industries it would take around 50 years." (Abalkin, p. 57) Depreciation reserves have been used in the main to patch up worn-out equipment, with little being done to replace inefficient or obsolete machinery. By far the lion's share of investment goes to expanding the country's gross capital stock, a fact that goes far toward explaining why the ratio of capital to industrial output declined by almost 40 percent between 1960 and 1985. Workers have to operate inefficient and obsolete equipment, with frequent time out for breakdowns. Furthermore, to the extent that the new equipment is added with a view to compensating for inadequate supplies of labor, raw materials, and parts, it may only add to an already existing problem of unutilized productive capacity.