The Fall of the USSR

The best book on both successes and failures of the Soviet Union is Mancur Olson’s Power and Prosperity. If you haven’t read it, you should. The second best is Randall Collins’ Essay in Macrosociology.

The great problem with most critiques of the USSR is that they do not explain its successes. In the 20s and 30s, it did far better in most respects than the West. In the 40s and 50s–and even into the early 60s, it was still doing very well. They put the first satellite in orbit, produced tanks that were as good as the West’s, and produced the most successful assault rifle in history. As late as the early eighties, there were points at which Russia’s best tanks were better than the West’s.

The USSR was one of the few nations larger than a city state which had industrialized through a process other than the use of mercantilist policies. During the Great Depression, the USSR vastly outperformed the West.

So, why did it fail? There are two perspectives. I believe both have a lot of truth to them. Let’s start with Olson’s: The failure of the USSR was a feedback problem. At the beginning of the USSR, local cliques and power groups had not formed. The central planners knew exactly how much was being produced, as well as exactly how much could be produced, and were thus able to coerce people into producing what they knew was possible to make.

As time went on, this became increasingly impossible. Put simply, the locals controlled the information flow to the center, and lied about what they could produce and what they did produce. Workers worked less than they could have, local bosses appropriated production to themselves, and the secret police couldn’t keep up, or became corrupted themselves. Absent accurate information, the central planners lost control. Everyone slacked off, corruption soared, production dropped, and the products produced were crap, especially the consumer goods. (The USSR remained able to produce some of the best military equipment right to the end.) Food production tumbled.

The second perspective is the geopolitical one. The USSR had less population than the West or even the US. It was faced with enemies on every side, while the US was isolated by sea from any possible assault and Europe only had to worry about attack from one direction. It had a smaller economy than its enemies. To keep up with its enemies militarily, it had to spend a larger percentage of its economic production than the West did. With a central position and a smaller economy, why would you think it wouldn’t crumble under the strain? I will note that Collins made this argument BEFORE it crumbled. By every normal “Great Power” metric, the USSR was weaker than its enemies. Fiscal strain is normal in such a situation, and it is to be expected that the economically weaker power will eventually lose. From a pure power perspective, and ignoring nuclear weapons, the USSR should have launched an all-out attack on Europe no later than the 70s.

This is basic guns-and-butter economics, understood by Adam Smith. The more you spend on your military and your security apparatus, the more your civilian economy suffers, especially as the most brilliant scientists and engineers are hived off from civilian production. The longer this goes on, the more you suffer. If you’re facing economies that are much larger than yours, you’re screwed. And the US economy was the largest in the world starting in the late 19th century, let alone a recovered European one.

As the USSR failed under these twin problems, exacerbated by the bleeding ulcer of the Afghan war, they also suffered ideological decay: They stopped believing in their own form of government, and became less and less willing to kill for it. When push came to shove, rather than use the Red Army to maintain control (something it was still capable of doing), they didn’t believe in the USSR and the Warsaw Pact enough to do so.

Now let us turn to capitalism. The advantage of capitalism v. central planning, is that information is sent through prices, supply and demand. This information feedback, however, is still gameable by power blocs. The exact strategies are different than in a command economy, but the end result is the same. The West and the US are currently undergoing this exact problem. The entire financial crisis was about inaccurate feedback and broken feedback loops–it was about the financial and housing industries deliberately damaging the feedback system. Then, when it finally went off a cliff, they destroyed the capitalistic feedback system (which, when properly operating, forces companies into bankruptcy) by obtaining bailouts due to owning western governments.

There are myriad other problems with feedback in the developed world right now, from massive subsidies of corn and oil, to oligopolistic practices rife through telecom and insurance, to the runaway printing of money by banks, to the concealment of losses by mark to fantasy on bank books, to the complete inability and unwillingness to price in the effects of pollution and climate change.

The great problem with humans is that we lack time perspective. In a hundred years, when historians and whoever deals with economic issues look back (hopefully not economists as we understand them), they aren’t going to be that impressed that Western Capitalism outlasted Soviet Communism by forty or fifty years. Instead, they are going to look back and say that both were doomed, in large part, by their inability to manage the exact same problem. In both cases, the feedback systems which controlled economic production were so perverted by various internal power blocs that the societies were unable to reproduce the material circumstances necessary for their continuance.

(This piece was originally published February 2014. I think it still says some important things, and many new readers will not have seen it, so back to the top. Ian.)

The results of the work I do, like this article, are free, but food isn’t, so if you value my work, please DONATE or SUBSCRIBE.