Raya Dunayevskaya

An Analysis of Russian Economy

From The New International, Vol. VIII No. 11, December 1942, pp. 327–332.

A – Overview

I – The Approach

In this study of Russian industrialization, 1928–1941, a period encompassing the First and Second Five Year Plans and that part of the Third Plan which preceded the present war, my fundamental purpose is to analyze the direction in which Russian economy has proceeded during that period. Is the direction of its growth – the preponderance of means of production over means of consumption, the high organic composition of capital and the rapid deterioration of the living standards of the masses – merely an accidental tendency, or is it the inevitable consequence of the law of motion of its economy?

First of all it is necessary to analyze the progress of Russian economy during the entire period covered by this study. I’m not concerned primarily, however, with a mere statistical measurement of this development because the degree to which the goals established under the plans were or were not achieved have no direct relevance to my thesis. But so extravagant has been the publicity which the proponents of the Soviet have given these data that the view is widely held that the allegedly phenomenal rate of industrial growth in Russia is the criterion of a unique form of economy. Therefore, in order to clear the decks for a basic approach to the subject, it is necessary to deal with this contention.

Russian economists refer to the purported 650 per cent increase in the value of all industrial production from 1928 to 1938 as a phenomenon that could not be surpassed, or even matched, except under socialism. They point with pride to that record as one far exceeding the accomplishments of the great capitalist nations in their palmiest days: the highest increase of industrial production in England was 29 per cent for the decade 1860–70 and for the United States it was 120 per cent for the decade 1880–90. It should be obvious, however, that the rate of economic development of a nation inevitably depends upon a number of circumstances:

1. The level [of] world-wide technological development when the nation embarks on industrialization. Russia in 1928 need not await the tedious process of discovery and invention, as did other nations at the dawn of the industrial revolution, but could draw upon the accumulation of centuries of industrial capitalism;
    
2. the extent of the natural resources available to the nation. Russia, one of the most favored of all lands in natural re-sources, containing in its borders all the essential materials of industry, is at a decided advantage compared to the nations less well favored by nature, as, for example, Japan;
    
3. the base from which the achievements are calculated. Clearly, it is easier to attain an annual rate of increase of 100 per cent when the base is one automobile or fifty than when it is one million or fifty million. Furthermore, the sheer bulk of capital goods in an advanced industrial society impedes the rate of technological progress because of the enormous expense and difficulty of replacing obsolete equipment; and
    
4. the measure of control which may be exerted over the component parts of the economy.

Russian statisticians and their apologists have a “preferred” method of proving Russia’s unprecedented rate of development: they use as their base the year 1929 – on one hand, the year of world prosperity, preceding the depression and, on the other hand, the first year of the Five Year Plan when the Soviet Union had just regained the pre-war levels of production. Thus they more easily can show a sharp upward trend in Russian production and an equally sharp decline in world production.

Presumably, it was because Japan was not among the highly industrialized nations that Russian statisticians, who so impartially compared the Russian growth to that of the advanced nations of the capitalist world, did not include “feudal” Japan in their comparison. We must, however, pause here and note that not only “socialist” Russia but also “feudal” Japan showed a tremendous rate of growth during that period. If we take a comparable period of development, say 1932–37, we find that the total value of the output of Soviet heavy industry was 23.2 billion rubles in 1932 and 55.2 billion in 1937, the value at the end of the Second Five Year Plan thus being 238 per cent of that in 1932.

Japan [1*], also passing to a more rationalized economy, had an index of 97.9 for heavy industry in 1932 and 170.8 in 1937, or 176 per cent of the 1932 figure. Moreover, Japan, poor in materials of industry, was compelled to travel long distances to import 85 per cent of its iron ore and 90 per cent of its crude oil and was far short of being self-sustaining in copper, lead, zinc, tin and other essential industrial metals. Furthermore, were we to take Japan’s high point of industrialization [1], August 1940, as the criterion, we would see that Japan had achieved a 253.5 per cent growth in the means of production, as compared to the index of 1931–33. Such a comparison then robs much from the contention that the rate of growth in Russia is either completely unprecedented or evidence of “socialism.” [2] In and by itself the rate of economic growth in Soviet Russia, as compared with rates of economic growth under other forms of economy, is not of definitive importance. To a Marxist the criterion of transcendent importance in investigating the nature of an economy is the intrinsic law of motion of the economy. With that criterion as our guide, let us review the achievements of Soviet industrialization.
 

II – A Statistical Abstract of the USSR

The only available index of total production in the USSR is that of the ruble value of all industrial output. Although the value of the ruble is fixed by the Soviet State bank at 19 cents ($1.00 equals five rubles and thirty kopeks), it is utterly useless as an index of production or purchasing power in the internal economy. (See section on turnover tax in next installment.) Neither has it any value on the international market.

An index of total industrial production which carefully weights each element in the economy in order to arrive at a statistically valid index of the volume of production, has never been prepared by the Russian economists. This task, never easy under ordinary circumstances, is especially difficult in the case of Soviet statistics, which are concealed or perverted to prove the correctness of “the general line.” Under these circumstances the best available gauge is that of comparing physical output of selected sections of both heavy and light industry as well as agricultural production, against a background of statistics on population and national income. Below is an abstract of the USSR prepared by me to illustrate the course of development of the whole economy from Czarist times through 1940. Figures for the year 1922 have been included in order to show the accelerated pace of the growth of production from the year of ruin following the end of counter-revolution and famine to the eve of the First Five Year Plan. All data are from official state documents in the original Russian: 1913, 1922 and 1928 figures from Gosplan: State Planning Commission for the Development of the National Economy of the USSR: The Five Year Plan; 1932 and 1937 figures from Gosplan: Results (of respective plans); 1940 figures from reports to the eighteenth conference of the Russian Communist Party, appearing in Pravda, February 18–21, 1941:

There is one other factor in the development of the Russian economy – a most essential effect of its evolution – to be the considered and which the Abstract did not deal with: the relationship between the production of means of production and the production of the means of consumption. Since it is purely for the purpose of contrast and the same basis is used in both instances, the estimates may be made in terms of rubles. The value of gross industrial production (in billions of rubles, fixed 1926–27 prices) reveals the following proportional development between the means of production (Group A) to the means of consumption (Group B) since the initiation of the First Five Year Plan:

Here we note a phenomenon characteristic of the whole contemporary world: the preponderance of the means of production over means of consumption.

Was the manner in which the economy developed bureaucratically desired? Was a different course open to it? In order to be able to answer these questions and fully to understand the Abstract, it is necessary to analyze the data in the Abstract, not so much from the point of view of mere volumetric increase, but, again, from the perspective of the law of motion of the economy. The volumetric comparisons will be considered only because they offer a clearer view of the direction in which the economic structure was evolving. With this as our perspective, we turn to an analysis of the individual Plans.
 

III – Plans and Accomplishments

1 – First Five Year Plan, 1928–32

The Gosplan brazenly proclaimed, whilst a famine was raging in the country, that the First Five Year Plan was 93.7 per cent fulfilled – just that precisely 93.7 per cent. That much publicized figure was based upon the value, and not upon the volume of production, and furthermore was derived in the following manner: (1) by using the worthless standard of the inflated ruble to measure the value of industrial output; and (2) by vulgarly computing an “average” between the “103 per cent” overfulfillment of Group A to the “89 per cent” fulfillment of Group B industries. There is, of course, no doubt whatsoever about the tremendous strides made in heavy industry during that period but in no case doe’s the value of output present a true picture of industrial production, as can be seen from the following table of actual physical output of major items of heavy and light industry [6*]:

As we can see from the above table, the actual production, based on volume, is far short of the 93.7 claimed as accomplished, based on the value of production. Even the percentages of accomplishment in the above table, however, are an overestimate because, although we have changed the basis from value to physical output, we still have retained the Soviet method of including the level of past production as part of the present accomplishment. [3] To illustrate what we mean, let us take the example of what happened to the railroads. Seventy-seven thousand kilometers of railroads were in operation in 1928 and ninety thousand were planned for the end of the First Five Year Plan. Actually, 83.4 thousand kilometers were in operation in 1932. Since the seventy-seven thousand kilometers in operation before the plan was included in the “accomplishment,” the plan was “92.7 per cent” completed. Obviously there is something wrong with a method that considers performance before the Plan as part of the accomplishment under the Plan. The correct method of computation is to determine the percentage of actual increase to planned increase for the years covered by the Plan, and none other. The planned increase is thirteen thousand kilometers, of which only 6.4 thousand were actually laid. Thus the Plan regarding the railroads was 49 per cent, not 92.7 per cent, accomplished. Carrying this method through, we find the following to be the true percentages of actual increase compared to the planned increase:

The above tables are a true balance sheet of the accomplishments of the First Five Year Plan. Particularly poignant is the record of how the production of means of consumption not only failed to meet its goals, not only showed no increase in production, but starkly reveals a decrease from even the 1928 levels. Moreover, the annual curve of production reveals that light industry was progressively deteriorating:

It should also be remembered that neither the annual curve nor the percentage of fulfillment takes cognizance of the extremely large amount of “defectives,” admitted to be as high as 30 per cent in many instances. Although disposed of as trash, they are nevertheless quantitatively counted toward the “fulfillment” of the Plan.

The best proof of the worthlessness of the standard of value output is that it not only fails to reveal the downward curve, but, by inflation, makes the reverse seem true. Thus the gross output of articles of consumption is valued as follows (in billions of rubles):

Needless to say, the drastic slaughter of livestock (greater than the decrease due to war, revolution, civil war and famine in 1914–20) was likewise not taken into account in arriving at the glorious “93.7 per cent” completion of the Plan. After all, the decrease in livestock was no part” of the Plan.

Neither was it part of the Plan – and this is of the essence of things – to achieve the relationship of production of means of production to articles of mass consumption which resulted. As a mater of fact, the bureaucracy had planned an increase in production of articles of mass consumption. However, the manner in which heavy industry developed forced a different course upon the economy. For instance, 4.4 billion rubles was planned as capital investment in the production of means of consumption. However, only 3.5 billions was expended. This failure is even greater than appears on the surface because, in the intervening years, 1928–32, the ruble experienced further inflation. For the moment we leave that feature aside in order that our attention will not be diverted from the actual course of the development of the means of production. There was the necessity of producing machinery with the most modern technique. The low productivity of Russian labor conflicted with the high productivity of international labor. Consequently, the reality of the world market and world prices constantly forced the state to increase the amount of capital investments going into the production of means of production. At the end of the period, planned capital investments for this end, which were to have been 14.7 billion rubles and were to have achieved a “balance” between the production of means of production and that of means of consumption, were actually 21.3 billion rubles, with a concomitant reduction in capital investments in the production of means of consumption. This resulted in a complete reversal in the planned relationship between Group A and Group B industries. This relationship was to be further aggravated by the progress of the Second Plan, although the announced purpose of the Plan was “to achieve a yet better improvement in the living standards of the masses.”
 

2 – The Second Five Year Plan, 1932–37

In the final year of the Second Five Year Plan, the controlled press published no announcement from the Gosplan in regard to the state of completion of the Plan. The press was busy in describing in glowing language the witchhunt the state was staging; the infamous Moscow Frame-up Trials. It took two years for the Gosplan to regain its voice. In 1939 it pronounced the Second Five Year Plan to have been successfully – and timely – accomplished. The “timely” referred to the year 1937, although no explanation was made of the overly-belated pronouncement. Let us scan the results, comparing the actual with the planned increase [7*]:

The lamentable showing in the production of articles of mass consumption was, again, contrary to the original Plan. The Seventeenth Congress, which approved the Second Plan, specified that there should be “a more rapid rate of development in the production of manufactured articles of mass consumption, not only in comparison with the First Five Year Plan ... but also in comparison with the rate of development of the production of means of production during the Second Five Year Plan period.” However, the high organic composition of capital on a world scale imposed [4] this law of motion on the Russian economy. Even the more rapid development of the means of production at the expense of the means of consumption did not gain for the Soviet Union an illustrious place in a setting of the production of the advanced capitalist countries:

As we see from the above table, the Soviet Union, at the end of the Second Five Year Plan, “when the first phase of communism, socialism, was irrevocably established,” had not only not outdistanced but was a long way from “catching up” with the capitalist world and compares not too favorably with “feudal” Japan.

It was in the year 1939, after the results of the Second Year Plan were first published, when the Third Five Year Plan [9*] was officially approved and had supposedly been in operation for over a year, that Molotov “suddenly” remembered that it was not so much the rate of growth, or even the volume of output, as the per capita production that defined the real state of development of a national economy. In presenting the Third Five Year Plan, he stated:

People here and there forgot that economically, that is, from the point of view of the volume of industrial output per capita of the population, we are still behind some capitalist countries ... Socialism has been built in the USSR but only in the main. We have still a very great deal to do before the USSR is properly supplied with all that is necessary ... before we raise our country economically as well as technically to the level not only as high as that of the foremost capitalist countries but considerably higher.

Thus the slogan of the First Five Year Plan, “To catch up with and outdistance the capitalist lands,” still remained as the task of the Third Plan.
 

3 – The Third Five Year Plan and Labor Productivity

The press followed up Molotov’s discovery that in the matter of per capita production, Russia was still far behind the advanced capitalist countries by systematic “revelations” of the low productivity of Russian labor. Industry, the organ of the Commissariat for Heavy Industry, reported in its issue of March 24, 1939, that for a capacity of 1,000 kilowatt hours the USSR employs eleven people but for a similar capacity in Europe and America only 1.3 people are used. The official organ proceeded to say that the example cited is not the exception but the rule; that, for instance, when an electric plant in South Amboy, N.J., is compared with a similar plant in the USSR, it is found that whereas in America 51 people are used to run the plant, 480, or 9.5 as many people, were used in Russia. Planned Economy, in its issue of December 1940, emphasized that, despite Stakhanovism, a Russian coal worker produces 370 tons, whereas in Germany the worker averages 435 tons and in the USA 844 tons. Likewise, whereas production in a U.S. coal mine is three times as great as that in a comparable Russian mine, the latter uses eleven times as many technicians, twice as many miners, three times as many office workers and twelve times as large a supervisory staff! The official organ of the State Planning Commission concludes that Russian labor productivity amounts to only 40.5 per cent of American labor productivity!

Despite high mechanization, labor productive on the agricultural front [5] shines no brighter. The January 1941 issue of Problems of Economy, issued by the Academy of Sciences and the Institute of Economy, carried an article on labor productivity in Agriculture in the USSR and the USA which included the following table:

In 1937, the article continues to sum up, the per capita value output of the Russian worker was $166, or only one-seventh the value of output in the USA.

Previous attempts to relate labor productivity to per capita production had resulted in an article in Planned Economy for October 1940 which included the following table:

The above official table reveals that, instead of being in the position of one of the most economically advanced countries, Russia is still a backward country industrially. It is interesting to note that for the period 1929–40, when, in Russia, Group B industries (means of consumption) fell from 55.6 per cent to 39 per cent of total production, while Group A industries (means of production) increased from 44.4 per cent of total production to 61 per cent, Japan’s heavy industry likewise increased from 33.7 per cent of total production in 1929 to 61.8 per cent in 1939, while light industry declined from 55 per cent to 38.2 per cent of the total economy. The fact that is of utmost importance is that, despite the comparative backwardness of both Russia and Japan, both countries reflect the high organic composition of capital characteristic of all important industrially developed countries. The Russian rulers were neither blind to this development nor undecided about which road they would follow in order to expand their industries. Listen to the chairman of the State Planning Commission:

The plan for 1941 provides for a 12 per cent increase in the productivity of labor and a 6.5 per cent increase in wages per worker. This proportion between the increase in labor productivity and average wages furnishes a basis for lowering production costs and increasing socialist accumulation and constitutes the most important condition for the realization of a high rate of extended socialist reproduction. [10*]

We have followed the direction of Russian industrialization and arrived at “socialist accumulation.” Voznessensky hid nothing from us when he mapped the main road for achieving “socialist reproduction.” Besides the chief sources of life – the relationship of wages to labor productivity, more commonly known as exploitation – “socialist accumulation” grew fat on other fare. Let us discover what kind of manna that was, for it will help us considerably in understanding Russia’s economic structure.

F. Forest

Author’s Footnotes

1. Measurements of growth by value of output is, of course, an entirely spurious method, although, for reasons best known to themselves, very commonplace with Soviet statisticians. Since later sections treat the subject of the inflated ruble at length. I shall leave criticism of this method aside for the moment.

2. Colin Clark (cf. his Conditions of Economic Progress), a bourgeois economist sympathetic to the soviet Union, estimates that the most rapid advance in economic progress, from the turn of the century to 1940, was made by Japan.

3. The credit taken for past performance is particularly ludicrous in the in-stance of the railroads. This was the only item which, for the year of ruin, 1922, revealed a tremendous growth. This was due to the effective work of Trotsky, who was charged with responsibility for restoring railroad transportation. Cf. Part Two, section on trade union dispute.

4. That the bureaucracy became the wiser because of this “imposition” will be seen in the section on Ending Depersonalization and Creating Stakhanovism.

5. Cf. Section on collectivization for more detailed treatment of agricultural front.

Author’s Notes

1*. For studies of Japan, see: Industrialization of Japan and Manchukuo, 1930–1940, by Schumpeter, Allen, Gordon and Penrose; The Economic Strength of Japan, by Isoshi Asahi, and Industrialization of the Western Pacific, by Kate L. Mitchell, 1942.

2*. This is not based on the unit which was used for previous years since, in 1933, for reasons best known to the Russian state and unrevealed to the public, a measure known as the “biological yield” was adopted. This standard of measurement meant the grain is estimated on the stalks in the field before harvesting, and a 10 per cent deduction is allowed for waste. All agricultural economists, with the exception of the Stalinists, of course, agree that such an estimate does not account for actual waste. Prof. Prokopovitch discounts an additional 10 per cent, or a total of 20 per cent, for waste; other bourgeois economists discount as high as 30 to 40 per cent. However, this abstract reports official figures only.

3*. 1937 census was destroyed and data were not made available to public.

4*. Russian statistics lump workers and employees in one category; or when they separate them into two categories they lump rural and urban workers in one category and rural and urban employees in another; the above figure represents urban workers and employees.

5*. Author’s own estimate; cf. section on Standard of Living, 1940.

6*. 1928 figures: Gosplan, State Planning Commission for the Dev. of Nat. Eco., 1930; 1932 figures: Gosplan, Results of the First Five Year Plan, 1938, both in Russian. The results are also published In English

7*. Planned figures computed from: Gosplan, The Second Five Year Plan for the Development of Nat’1 Eco. of the USSR; accomplished figures computed from Gosplan, Results of the Second Five Year Plan, 1939; both in Russian. There is no English edition of the results; there is one of the Plans, but it varies considerably from the figures in the Russian edition.

8*. Table by Molotov in speech to the 18th Congress, RCP, March, 1939, with exception of starred figure, which is from Problems of Economics, No. 8/89, in Russian.

9*. Those who wish to see the Third Plan can consult: Gosplan, The Third Five Year Plan for the Dev. of the Nat. Eco. of the USSR, 1939 (Russian); no English edition was published.

10*. Voznessensky, The Growing Prosperity of the Soviet Union.

Footnote by MIA

A. This has been corrected in line with the Correction published in The New International, Vol. IX No. 2, February 1943, p. 57.

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