Unit-12 Russia III Soviet Economic Development 1928-1941

7/27/2019 Unit-12 Russia III Soviet Economic Development 1928-1941

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UNIT 12 SOVIET ECONOMICDEVELOPMENT : 928-1941Structure12.0 Objectives12.1 Introduction12.2 Background12.3 Found ation of Econom ic Planning12.3.1 The Planning Controversy12.3.2 Structure of I'lanning12.4 Th e Five Yea r Plans12.4 .1 The First Five Year PIan12.4.2 The Second Five Year Plan12.4 .3 T he Third Five Year Plan12.5 Let Us Sum U p12.6 Key Words12.7 Som e Useful Book s12.8 Answers to Check You r Progress Exercises

12.0 OBJECTIVESAfter reading this ul it you will know abou t:

the creation of an economic system which later came to b e known a s the commandeconomy,the most salient features of th e comm and eeonomic system, andthe achiev emen ts anrl fai!ures in formula tion and implem entation of th e first thr eeFive Year Plans.

-12.: INTRODUCTIONTh e year 1925 saw the beginning of a new stage in the economic develop ment of theUSSR. So far the efforts of th e goverriment were directed solely towards expanding th eproduction on the basis of th e existing capacities. The re were to cq ittle resources andexpertise at the disposal of the government to allow it to em bark o n a m ore ambitiolrsprogram me of economic develop ment. But by th e year 1925 the economy hadsufficiently recovered from th e chaos and destruction of th e First World W ar and thesubsequen t Civil war. He nce, th e governm ent, after assessing the pace an d the level ofoverall economic growth, could now think not only of attending to th e most imm ediateeconomic tasks but also about th e more im portant long-term economic goals and th emean s of achieving tnese goals. The industrialisation debate seems to hav e been a fairlyaccurate reflection of this ~ i e wn the Comm unist Party and the government.Th e Comm unist Party and th e Soviet government were now thinking in terms of newinvestments and new construction. T he industrial production had a lready reached th epre-war level and th e agricultural production was almost at th e pre-war level.The refore , the problem ncrw consisted in drawing up a correct picture of th e direction .in which to proceed further, and of the means and methods to be used. As we have seen ,there w ere wide differences in the Comm unist Pafly and th e government regardingthese issues. But a decision had to be taken so one r rather than later, a s to which courseamong the ones propagated by th e different groups would be best for the country. Th edecision that was finally taken was in favo ur of the mode l proposed by the left-wing ofthe party- he mo del of unbalanced industrial growth. Paradoxically, it was not th eleaders of this group who decided th e fate of the c ountry by opting for this model ofeconomic growth but those who had m ost vociferously oppo sed them during thepreceding discussion.


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BACKGROUNDIn 1925, it became increasingly clear tha t, apa fl from the ge neral backwardness ofagriculture, there was one very im portant factor which hati now becom e the major.constraint in the development of the econom y. O n (Iclose exam ination of the situationin the agrarian sector after 1925, it soon become- clear that o ne of the main problem sto have manifested itself during th e whole period was that th e share of the markete dsurp lus of the peasant produce was lagging considerably behind the pre-war level,inspite of the fact that both the gross agriculture production and the overall sown ar eahad reache d the pre-war level. In 1926, only 13per cent of the grain production wasbeing put on t he m arke t, whereas th e same indicator for the last pre-war ye ar was 3.6per cent. This shrinkage of the am ount of grain being put on the marke t led to lowerurban consumption a nd, what was even m ore serious, t o a very low level of export ofgrain an d oth er goods. T his considerably restricted the governm ent's ability to importthe much needed machinery and capital equipment for the industrial sector in exchangefor agricultural products.On e of the m easures which the governm ent devised to tackle this problem was to effectsom e kind of price stabilisation of industrial products. T he gov ernm ent once againattem pted to co ordinate t he activities of the various grain collecting agencies, bothgovernment and non-government, by setting up the maximum an d minimum pricelimits. As a result of this policy, the rise in th e wholesale prices of the agriculturalproducts, in th e following yea r, was restricted to only 2 per cent . This success of thegoven~mentn stabilising the prices, how ever, was not without negative consequ ences,as it gave rise $0serious setbacks in production ~ n dn grain deliveries. This was boundto affect the consumption in the towns as well as the exports. Apart from the marketedsurplus of agricultural goods obviously im porta nt for the towns as a source of foodstuffand fo r the export s ecto r, its relevance for regions of specialised commercial farmingwas no less. Shortage of foodgrains, thus, no t only affected production innon-agric ulture sectors but also undermine d efficient functioning of the mostprogressive section of the agrarian sec tor itself.Th e situation, hence, was quite complicated for the Soviets because of the obviousdilemma of transforming the industry into a mo dem secto r, thus providing the base forthe development of the rest of the economy. A t the same time it altered the age oldcharacter of R ussian agriculture without seriously affecting the grain production an dsubseque nt supplies of agriculture goods. T he Soviet governm ent, rightly or wrongly,found th e solution to this dilemm a in large scale cooperativ e farming.It should be remem bered that t he coopera tive movement was always given high priorityby the Soviet governm ent in its policies. But so far cooperatio n was restricted t o thesphere of trading and credits. Now the governm ent wanted to expand the sphere ofcooperatives to the production sector also. B ut this task presented absolutely newproblems for the policy m aker, the type that had no precedents in the history of variousreform s of the ag rarian sector in Russia.So fa r cooperation in the agrarian sector in Russia had evolved three types oforganisational forms: (a) a very elem entary form known as the society for jointcultivation. Th e peasants worked the land together an d shared th e yield according tothe size of the households, but ea ch of them co ntinued t o be the own er of his sepa rateplot of land, implem ents as well as draught anim als; (b) the s o called communes inwhich the peasan ts.mem bers not only conduc ted collective farming but eve n organisedtheir lives along communist lines; (c) the artel system in which the mem ber peasantsconducted their fan di ng nd shared the yield from the agricultural land which was nowheld in common w ith commonly owned implements, w hile their houses and housegardens continued to belong to each m ember separately.Th e Soviet government, while looking for th e most suitable form cCcooperation tobegin their drive for the collectivisation of the agrarian sector, came to the conclusionthat th e form of the 'artel' was most suitable as the proceeding point. Th e logicunderlying this decision of the Soviet governm ent was tha t, while the 'artel' formcontained all the progressive eleme nts in the traditional mo de of farming, it alsoprovided a real opportunity to organise large scale agricultural production and ot her


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ictivities on the basis of the use of m od em mechanised m ethods. I t was also expectedthat th e organisation of large scale farming along the 'artel' lines would enable th egovernment t o procu re a larger portion of the agricultural surplus for the mark et.Th e results o f organising farming activities along new lines, however, show ed that thegovernmen t was to o optimistic in their assessment of opportunities for solving theproblem of a st eep rise in the efficiency of the farming sector provided by th e new formof production organisation in agriculture. Altho ugh, th ere was a rise in the imme diatefutu re in the am oun t of grain finding its way into the m arke t, there was no significantrise in the yield per unit of the are a sown. Thus the expectations of the governmen t wereonly partly fulfilled. Th e new policy of the g overnment only served to save labour, butcould no t prove itself sufficient for solving the difficulty of providing an exp andin geconomy -most notably an expanding industry an d increasing population -withade qua te stocks of raw material and foodstuff in the short-term. A s the experimentprocee ded, it became clear that it could only be achieved in the long-term or, in themost unlikely case of the m ost optimistic scenario becoming a reality, only in the middleterm. I t became m ore and more clear that the government could not possibly depe ndon the coo peration movement alone for even the short- term goals of procuring largeincreases in the m arketed surplus of grains and cutting down the g ap in the grainsupplies.This difficulty was now in tended to be ov ercome by th e government by introducing aset of administrative measures and simultaneously by a more fa r reaching policy ofsetting up state owned large scale farms- sovkhosy'. Th e government wanted to ,treble the area under the sovkhosy in the very near future s o that they would be able toproduc e abou t one a nd a half million tons of grain. To he lp the sovkhosy in theirfunctioning a special trust- zernotrest' -was forme d. The se measures did producegood enou gh results in order t o convince the government abou t the feasibility ofexpansion of this form of the 'socialised sector' in agriculture. But any such expansionof the sphere of th e state farms entailed extremely large amo unts of capital investments,especially in the industrial sector producing equipmen t for th e farming sector for theproduction of trac tors, iron ploughs, harvester-combines etc .This policy of setting up artels in the coo perative sector an d, additionally, of state farmswas in orde r to,primarilysolve the sh ort-term goals of increasing the mark eted surplus.It had very far reaching consequences for the developm ent of agricu lttre in the countryover a long period of abo ut fifty years. It proved t o be both the source of strength aswell as weaknesses which were to plague the agriculture in the futu re. T he policy of thegove rnme nt, of promoting the 'socialised sector' in the economy as part of a deliberatepolicy by providing it incentives and concession s, crea ted social antagonism s in thevillage between those ordinary peasants an d the upp er layer of richer peasants whocame to view the new policies of the governme nt as a threa t t o their profit makingprospects. Th e prospects of competition a nd , what is even m ore significant of outsurviving the socialised sector with all its adva ntages of preferentia l treatm ent in credits,farm equip men t and , and sales, when the socialised sector could procure inputs for aguara ntee of future supplies of grain to the go vernm ent, were indeed too daunting for,kulaks. T he only recourse that this richer stratum of th e peasants now had was eithe rsoon er or late r, to join the socialised sector or to organise som e kind of an oppo sitionto these new policies to stop them from being implemented by the gov ernment.Th e new social unrest that was unleashed in the cou ntry resulted, eventually, in aheadlong clash between the very rich, peasants o r the 'kulaks', on the o ne side and thegovernment an d the mass of the 'bedniak' (the poor an d the landless peasants), on theothe r side. Its political fallout had extremely negative andlong-termeffects n ot only fortthe agrarian sector but also for the social fabric, the political set up and econ omicdevelopment in the country. A t first, the governm ent was cautious in its treatm ent ofthe kula ks, but with th e passage of time it initiated a policy of expropriatin g the kulaksas a class. This policy was used in the inter-pa rty struggle and was finally to becom e atool in getting rid of wide sections of the party m embers.--Check Your Progress 11) What was the m ajor problem in U.S.S.R. agriculture on the ev e of the First Five

Year Plan? : . ... . . ..,,*.... . .........................................................................................


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..........................................................................................................2) Wh at was the essence of the agriculture policy of the governm ent in this period?

FOUNDATION OF ECONOMIC PLANNINGAs we have seen , the problems that the Soviet government was faced with had a veryuniqu e feature of being und er the compulsions of an accelerated econom ic growthwithou t any real possibility of getting from abr oad th e considerable amo unt of resourceswhich could not be gen erated in the short-term. The m arket mechanism as the eventsduring the period 1921-1928showed was not capable of providing t he basis for this typeof economic growth. T he centralised methods of coordination of the productive anddistributive activities proved to b e inad equate a s well. Th e developments of this period,especially in the Co mm unist Party which witnessed the ascendency of Stalin to th e topof the leadership ladder, put the group which propagated th e pre-dominance ofplanning in influential decision making pricess and relegated the sup por ters of themarket to a secondary place. The industrialisation debate an d the cooperativemovement strengthen ed the hands of these elements, and the question now was nolonger that of the m arket or planning but on e of overall planning with som e smallsectors being allowed to op erate in a m arket en vironm ent. Even the se small islands ofmarket econom y were to be gradually in tegrated into the larger planned socialisedsector.It is, therefore, necessary now t o turn th e focus of ou r attention t o the various aspectsof the planning process -towards the method s of planning as well as the struc ture of theplanning ap paratus. T he twenties of this century in th e Soviet Union was a period ofintense deb ate on the issues of

the relevance of the alternate growth ~n od els ,the relevance of planning and m arket,the type an d scope of (socio-?) econom ic plannin g,advantages and shortcoming of the various alternate planning theo ries etc.

This discussion, which can be terme d as the planning debate on analogy of the earlier.industrialisation deba te, was characterised not only by a bitter struggle of this or thatgro up for recognition of their ideas as truly necessary or as the only tr ut h, bu t alsobetween various planning bodies and oth er government agencies for supremacy orat least a dominant position in the structure and hierarchy of the planning ap paratus.12.3.1 The Planning ControversyDuring the period of the NE P, marke t relations were reintroduced o n a large scalereplacing the centralised system of planned distribution. It witnessed the origin of thedeb ate o n planning concerning itself with issues as differe nt, thou gh organicallyinterconnected , as

the role of planning in the country's development in th e social and economic spheres,the scope,the kind of planning,its compatibility or its incompatibility with th e operati on of m ark et forces.


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-Dcrrbpmcllt@Rd-n Th is last issue infact domina ted the discussions forming the central them e aro und whichthe discussions regarding the merits and de merits of oth er aspects of planning w ereconducted . This issue of m arket versus planning was essentially a question of wh etherthe marke t forces were going to provide th e limits and the essential framework for theplanners in the process of formu lation of th e plan , i.e., was it precisely the m ajor taskof economic planning to overcom e the constraints limiting the choices of the econom icplayers.Th e planning debate showed that , eventually, the discussions came down to a strugglebetween basically two groups, notwithstand ing ce rtain differences on matte rs of detailwithin the m embers of each of the groups. O ne of the groups which included sucheminen t Russian economists of the time as N .D . Kondratiev (of the business cyclefame) and the Gosplan economist , V.G. Grom an, argued for a dema nd directedeconom ic planning an d cam e to be known as the school of economic geneticists.T he econo mic geneticists greatly emph asised th e significance of the role of thecons um er dem and in any policy making process as it is one of the rllost reliableindicators of the direction of the change taking place or abo ut to take place. He nce , itwould serve the pla nne r as a viable tool in is search for pro pe r orientatio n targets of thechanges he seek s through planning. T he geneticists viewed the economy as a largedynamic nonlinear organic system of closely interrelated a nd in terdep end ent sectorsdictating to the planners th e necessity of strict inner cohere nce an d consistency of themeasu res to be included in the plan. T hese intrinsic properties of consistency a ndcoherence of the system to be subjected t o planning found their most ela borate andexplicit reflection in the dem and structu re. The refore , it became the primary functionof the planning b odies to first identify the de ma nd stru cture in its details with as muchprecision a s possible. Th en , on the basis of its logic and m ove men ts, the planningbodies forecast rn d projected the trend s perceptible in the market which could then bepassed on to be used by the pla nne rs in the proces s of decision making conce rning theirrespective areas of competenc e- ector or regions. They furthe r stressed tha t, whiledrawing up the plans, the internal balance must not be disturbed as far as possible.Also, the inter-relationships between the various sectors should be so organised so asto ke ep the system in a state of general equ ilibrium. I t was impermissible, in the viewof the geneticists, to expand on e sector, be it heavy industry or any othe r, withouttakin g full cognizan ce of its likely impact on the equ ilibrium of the interre lated secto rs.Ignoring the essential equilibrium conditions between sectors would eventually lead t ocreation of serious macro-economic disproportions, which would, in turn , impede thedevelopment of the economy as a whole.Th is school of economic though t was closely involved with the planning proce ss duringthe NE Pan d, hence, i t favoured planing within a broad market framework. Ho wever,the-id eas of this gro up regarding the role of and sco pe of planning were vehe mentlyopposed by the other grou p of economists, the most influential economists in theirranks being P.A. Feldman (credited with developing the first mathematical model ofunablanced growth in favour of heavy industry) and S . Strumilin. The mem bers of thisgrou p looked upon the plann ers not simply as economists following the dictates andconstraints imposed by the market forces, but as qualitatively different kind ofeconomic experts.They would now be engaged in a qualitatively more complex task of engineeringof theeconomic machine. It would involve overcoming the limitations put by the marketforces on economic developm ent and activities of the econom ic players involvedincluding the state and finally changing the system itself. In short, they viewed theplanners a s economic engineers and the economy as a m achine. This grou p of economistscame to be known as the teologists. T he leading role in economic de velopm ent belongedto the plan which was to deal with th e othe r sectors especially finance and m arke t. Th estarting point for planning in their view was not the existing and projected deman dstructu re, but the formulations of the n ational goals by the political leadership of thecountry. It was then th at planners came into the picture. The ir main function wasformulation of an economic strategy which would include such param eters as outputtargets for basic industries, with th e only limitations being imposed by the availableam oun t of resources. These resources could be allocated t o mee t the needs of thevarious sectors, more importantly the heavy industry, inde pend ent of the ma rketrequiremen ts. They did not consider the maintenan ce of equilibrium in the economic


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system of any relevance in their model of planning, but looked upon it as an unnecessary ~ov~~conoml revebpnca:constraint. According to them, the process of planning consisted of suc :essive -- - 1%1941approximations: first plans for the crucial sectors were to be prepared, then the plansof the other related sectors, but secondary in importance in to the first ones.12.3.2 StructureofPlanningThere had been attempts at planning of the ccuntry's economy from the earlie.,, daysof the Soviet regime. These, however, were either extremely limited in their scope anddid not play any significant role in the 'economic life of the country o r were notimplemented due to the war and overall disruption. In any case, for the whole periodof 1917-28, there was no comprehensive economic planning, inspite of the communistleaderships' dedication to the goal of introducing planning in the development processin the country. However, it would not be correct to assert that there had been noplanning at all . During this period considerable experience ha J been accumulated informulation and implementation of plsns, albeit, on small scale and usually within thedifferent sectors when they were facing the shortages of inputs and foods by, creditcrunch and difficulties in the distribution system. There were a variety of agencieswhich in one way or another were involved in drawing out of plans throughout theturbulent twenties. An on g the most important were the Vesenkha (SupremeEconomic Council). The Ministry (Commissariat) of Finance, The Ministry ofTransport , the Gosplan of USSR (directly under the central authorities), the regionalGosplans, the Sovnarkhozy and other minor agencies were involved in the planningprocess.The sole purpose of the Gosplan, a major agency among this great variety ofgovernment bodies, was to prepare long-term and operational plans. In the earlytwenties, the main burden of the work fo. coordinating the great variety of sectoralplans was placed with the Gosplan. But. apart lrom this function of an overallcoordinator, the.Gosplan had very little to do with the actual planning process even ofthe various sectors, which was relegated to sectoral administration. The work ofplanning was usually carried out either by the sectoral glavki or by the Vesenkha. TheGosplan participated in this process in the capacity of an agency providing the so calledcontrol figures or , in other words, tentative output targets for different sector? of theeconomy. The operational plans for the individual sectors which included financial andproduction targets with a detailed period wise break-up for the year known astexpromfinplanswere being drawn up by the glavki and the Vesenkha. This period sawan important innovation in the planning methods with the introduction of a system of'material balances' which consisted of the balance for the use of various industrialcommodities, usually in short supply, in individual sectors. This system of planningwhich involved a large number of separate planning ageccies proved to be too complexand cumbersome. Finally, the planning function was almost completely transferred toThe Gosplaq. Now the process took approximately the following form: The Gosplan,in its capacity as the central agency on planning, would first receive the proposals fromall other planning bodies. Then the Gosplan would work out its own independentcontrol figures for the development of the various sectors. Then the proposals from theother planning bodies were modified in accordance to the 'control figures' worked outby the Gosplan and the modified version of the original proposals were given the formof the 'texpromfinplans'. Finally, the allocations were made to individual sectors andenterprises in accordance withthe balances drawn on the basis of modified versions ofthe 'texpromfinplans'.-Check Your Progress 21) Describe the planning controversy.


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~ ~ d ~ ~ - n) Describe the proce-ss of plan formulation.....................................................................................................................................................................................................................

12.4 THE FIVE YEAR PLANSThe first control figures for the First Five Year Plan were initially prepared by theGosplan in the form of a draft presented in March, 1926 for discussion. At first theimplementation of the plan was to begin in 1926, but later it was postponed to 1927because of the inability of the government to make a decision on the issues discussedearlier. Only later when the disputes had been resolved it became possible to present aproperly drawn out plan for discussions and subsequent implementation subject, to thechanges sought, if any.

Table 12.1:The First Five Year Plan

Non-productive Accumulation in Growth of FixedVariantsof the National Consumption ~ r o s s Amortisa- both Fixed and CapitalPlan and Yea n lncome lnvestment tion Working Capital

In % ofCol. 2 In % of In % ofCol. 2 Col. 2

1927-8 24.7 20.0 80.1 7.99 3.33 4.66 18.9 3.72 15.1Minimal variant1928-9 27.5 21.3 77.4 9.70 3.48 6.22 22.6 4.64 16.91929-30 30.5 22.8 74.9 11.37 3.70 7.67 25.1 5.84 19.11930-1 33.5 24.5 73.0 13.04 4.00 9.04 27.0 6.87 20.51931-2 36.9 26.7 72.4 14.58 4.38 10.20 27.6 7.68 20.8 - '1932-3 40.6 29.6 73.0 15.76 4.81 10.95 27.0 8.54 21.0Forthefiveyears 169.0 124.9 73.9 64.45 20.37 44.08 26.1 33.57 19.9Optimal variant1928-9 27.5 21.3 77.4 9.70 3.48 6.22 22.6 4.64 16.91929-30 30.9 22.2 71.8 12.41 3.70 8.71 28.2 6.47 20.91930-1 34.8 23.6 67.9 15.22 4.04 11.18 32.1 8.23 23.61931-2 38.7 25.8 66.8 17.34 4.49 12.85 33.2 9.39 24.31932-3 43.3 28.8 66.4 19.55 5.01 14.54 33.6 10.96 25.3Forthefiveyears 175.2 121.7 69.5 74.22 20.72 53.50 30.5 36.69 20.9(So u rce : M au r ice Do b b So v ie t Eco n o mic Dev e lo p m en t s in ce 1917, L o n d o n , 1960 p . 236.)

12.4.1 The First Five Year PlanThe First Five Year Plan was projected in three different scenarios or 'variants'.

I. There was tife maximum variant or the worst case scenario, taking a cautiousapproach to the various uncertainties that may manifest themselves in the courseof the plan implementation and be a source of setbacks.

11. then there was the optimal variant taking a balanced look of the possibilities andthe uncertainties for the development process in the future and,

111. lastly, there was the maximum variant or the best case.scenario, which was basedon assumption that the uncertainties in the future would not have a very seriousnegative impact on the development efforts. A table, which has been borrowed.from chapter 10of Maurice Dobb's book mentioned in section 'Some Useful


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Taking an overall view of the economic developm ent du ring the whole period of the ~~~:First Five Yea r Plan, it becomes clear that, inspite of many negative developm ents, this 19EB194period ca n be considered to be o ne of econ omic success, fulfilling the ma jor objectiveswhich the government and th e Comm unist Party leadership had set before themselves.On e of the major pro blems which the government faced during this period was that ofexcessive labour in th e towns accompanied by a shortage of qualified working han dsand trained person nel. This posed a serious problem, not only because a ste ep increasein the population in the towns gave rise to many problem s related to housing, medicalservices, etc ., but also because th e shortage of trained workforce would exert severeconstraints on supplying th e growing mod ern industrial sector with technically edu cate dpersonnel an d managerial staff. The excess of the untrained worker was a result of a ninflux of labour from t he coun trysideTh e events of the first two years of th e First Plan were on th e whole considered t o befairly successful, though they certainly were no t without m in y negative fea tures. 'Am on g the positive gains of this perio d was a substantial increase in th e yield oftechnical crops. Also, collectivisation moved ahea d at an im pressive pace. Bu t on th enegative side there was disequilibrium between dem and an d supply about whichBukha rin an d his associates had warned long ago; it not only persisted b ut, in fact, gotaccentuated even fu rther. But the overall developm ent during the next two and a halfyears was considerable. The m ost impo rtant result was the considerable increase in therates of investments, which even surpassed th e original estimates. Th e negative side ofthis success was that this increase took place at th e exp ense of investments in the lightindustrial sector, thereby impending its developmen t and slowing the pace requ ired tosatisfy the dem and f or its products. Oth er small scale sector enterprises and workshop s,along with private agriculture were th e are as to suffer because of exceptionally highrate of investments in the heavy industry. But th e State Machinery Stations providedagricultural equipment and machinery t o the collective farms an d State farms. S o thesewere the main beneficiaries of discriminating investment policy of the government,which had favou red these branche s with considerable investm ents at the expen se of th esectors men tioned above .During this period, a large num ber of industries were re constructed o n the basis of newequipm ent and m achinery, produced during the plan period itself. Thu s it, wasestimated tha t about 50 to 80 per cent of the new equipm ent and machinery wasintroduced in engineering, coal mining, mo tor car and tractor building, and machinetool construction. Some sec tors had such a high prop ortion of newly created capacitiesthat they could have been described as newly constructed industries. Chem ical, oilrefining an d energy industries were precisely such secto rs. The industries belong ing toGro up A , which included all the industries engaged in the production of clpital goodsor "industries producing me ans of production" in Marxist economic terminology, wereamon g those that showed particularly good results, in many cases showing results evenbette r than the figures projected for them . They outstripped th e projected figures forthese industries by a margin of abou t 250 per cent. Th e large scale industry, consideredon th e who le, showe d a growth of 118 per c ent o ver th e 1926-27 level, falling slightlybehind the projected target of 133 per ce nt, while the oil industry showed a m arginalpositive difference in comparison to th e projected figures of the plan.Th e consum er goods sector or the G rou p B of the industries in the Marxist economicterminology showed results which could not by any m eans be called even satisfactory-their perform ance was simply poor. T he textile industry was certainly the p oorestperfo rme r. This branch of the light industrial sector showed a decline in production incertain areas even below th e production level of 1928. Th e food catering industry,howev er, showed remarka ble progress espkcially in building can teens and factorydining-rooms ('stolovayas') for the workers, thereby contributing greatly to raising th estandard of life of the workers. At the e nd of the plan, this sector expand ed to a scalewhen it could provide at least one meal per day for approximately three-fourths of theworkforce.Th e State Budget was the m ain source for raising the level of investmen ts. In the plan,the investments were envisaged to be ge nera ted by the reserves of th e industry itself bycutting down on the costs, but that aim remained m ainly unfulfilled. After 1930, thefinancing of capital investments an d investments in the de fence industry was carried outby generating finances through impositioning of a turnove r tax, which was determinedin proportion to the volume of the turnover.


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,The overall conditions of life rem ained difficult, inspite of fairly good overallperform ance of the econo my. It became clear that the persistent efforts in theconstruction se ctor and industry would have t o be continued in ord er to bring about areally tangible change in th e stand ardo f life of the m ass of the population, not only fora section- epresented by the u rban w orkers, especially the highly qualified section ofthe workforce. But at the same time signs of a better future were alread y discernible bythe en d of this plan pe riod.12.4.2 The Second Five Year PlanTh e Second Five Year Plan began in 1933. Th e majo r thrust of this plan was towardscompleting the work on technical reconstruction of the economy begun u nder th epervious plan. D uring this period, the main direction of the plan was toconsolidate th egains of t he previous pla n, which found its reflection in

a more m odest target settingincreased emphasis on qualitative improvements in the work m ethods and workethics,

@ increased productivity of labour by improving the quality an d intensity of work andcutting down of ove rhead costs.How ever, it was realised tha t success in this direction depende d on specific measureswhich had to be tak en towards introducing new andlor improved metho ds of productionand new techniques. T here fore, th e planners set lower outp ut targets in the final plandocument tha n in the draft version, and concentrated particularly on the qualitativeaspects of t he econ omic activities rather than o n th e in magnitude.Agriculture was subjected to radical changes during this period, especially byestablishing new relations betwe en agriculture an d industry, and replacing the m arketsystem by a system of planned supply qubta s. As we have se en, the forward contractschem e, initiated earlier, provided that the paym ent for services rendered to thecollective farm sby the government o r its enterprises could be m ade later a t the harvesttime, on the basis of certain guaran teed supply quo tas by the collective farms.During the Second Plan, this form of contract became dom inant, and the supply quotaswhich were earlier made on a voluntary basis were now m ade obligatory. T he prices ofagriculture good s were fixed by th e governm ent. For the collective farm s, a specialconcession was m ade, w hereby they could sell in th e market place the surplus left overand above the quo ta fixed by the governm ent.A very significant con sequence of this sytem was th at, as th e quo tas were fixed ,beforehan d, the collective farm s were now m ore interested in maximising theirproduction, because a larger yield would leave them with larger stocks after thededuction of the qu ota. This led to an increase in the m arketable surplus andconsequently to greater availability of food p roducts to th e urban centres and rawmaterials to th e industry. This achievement was even m ore com mend able because ofth e rapid rise of the urban population and was high rates of growth of industry. I t wasestimated that th e amo unt of the surplus available for consumption to the urba n centresand to the industry increased during the d ecade 1928-1938 by approximately 250 percent.In the industrial sector the main emphasis was now on improving the p erforma nce ofthe iron and steel industry by introducing new technologies , and training of person nelcapable of working with these new technologies. In ad dition, the developm ent of thenon-ferrous metal industry was also put o n the agenda of the plan. This would reducesubstantially the depende nce of th e country o n im ports of these crucial industrial basicinpu ts the dem and f or which was rising steeply as a result of the developm ent ofelectrical and de fe~ ice ectors. These industries put a particularly heavy deman d onsuch non-ferrous metals as copper, aluminium, zinc and nickel. The prod uctsproduction of copper was to be developed in the Urla l and in Kazakhstan , t k a t ter a lsobeing developed as the ma jor lead producing area along with the zinc producing areas.T he produ ction of a range of non ferrou s metals was set up in the cou ntry for the firsttime. T he production of nickel, magnesium and tin was included in the plan forexpanding the base of metal production in the co untry.


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The tran sport sector was anothe r are a, which was given high priority in the developmen tpolicy of the Second Five Year Plan. This sector was under severe strain at the tim e du eto a number of reasons, and had be come a m ajor bottleneck for the economic growthin general. Only large investments in this sector would enable the e conomy to functionsmoothly. This strain was a consequence of the industrialisation and the subseque ntmigration of large numbers of people from the villages to th e towns and cities. A pa rtfrom substantial increase in the movem ent of foodstuff from the countryside to theurban c entres, there was a considerable change in the pattern and volume ofinterchange of materials between the different regions of the country. T he roadtran spo rt, by and larg e, barring the imm ediate vicinity of large town s, was in a verypoor co ndition. Th e river transport was also in n o better condition as far as its technicalbase was concerned. Fo r, major parts of the country were equipped w ith extremelypoor hardware and harb our and port facilities we re, if anything, primitive. T he railroadwas interconnected by a single track, which, in its turn acted as a constraining factor inthe m ovements of industrial and agriculture products. T he hardware base of therailways- t stations, signalling systems, depo ts and repair e quipm ent- as largelyinadequate and obsolete.The engineering and m echine tool iridustries were also made the focus of atten tion o nthe part of the plann ers as it was realised that qu alitative changes in the productionsphere and higher productivity were largely dependent on estbalishing a technicallymod ern base for the enterprises in these crucial sectors. Th e Second Plan, ther efor e,attem pted t o considerably increase the availability of mo dern m achinery an d othe requipment- roduction of approximately 200 new types of machine too ls was designedto be set up. This was considered to be central eleme nt in the overall design of creatinga new m achine building sector in the country, ensu ring a highly developed sector forproducing m achines. Th e planners concentrated their efforts in this sector mainly onsetting up production not only of mode rn and technically sup erior machine tools but,wherever it was possible, they gave preference to production of complex mac hine tools,and m ore importantly to the production of automatic and se mi-automatic machines.On e of the overriding con cern, of the plann ers was that the developm ent of this sectorshould proceed at such a paces and b e concentrated in those areas of crucial import,which would ma ke it possible for the country to become independent of foreign sourc esin the shortest possible period. T hereby undu e strains of importing machinery a s ithapp ened during the First Plan period would be avoided the barrier t o faster growth in thefutu re not only of industry, but of th e rest of the related sectors as well would beremoved. Th e increase in the produc tion in this sector in value terms was estimated tohave been to the extent of 500 per cent. Th e explanation for such a stee p rise in thisindicator lay in the fact that a large portion of th e outp ut consisted of complex machinesintegrating the latest technical innovations. O n the oth er ha nd, the increase in physicalterms o r real growth was much less and con stituted approximately 250per cent over thelevel of the previous plan.Th e rationalisation of the regional (or territorial) structu re of production in accordancewith the requirements of the time was ano ther salient feature of this plan. Th oughconsidered a n integral part of th e planning mode l and the-need for which wasemphasised even in the early twen ties, it was in fact now forced upon th e planners du eto the strain put on the economy by the relative underdevelopm ent of transport system,which hindered sm ooth moveme nt of the products between the regions and ma de thedelivery and supplies of goods extremely erratic and uncertain. T he indus tries usinglarge quan tities of raw m aterials but in which a large portion of weight of the rawmaterials is lost during processing and production of the final produ ct, the so calledweight losing forms of production such a s metallurgy, were now planned to be shiftedto major m ining regions. This even tlall y marked the beginning of the eastward shift ofthe industries using raw materials in bulk as the East was the main mining area forminerals and metal cores , and initiated a process of accelerated development of theonce backward areas of Siberia and K azakhstan an d also of central Asia which was tobecome an a rea of specialised technical crop cultivation. Th is policy was all the m oreenthusiastically persued by the Soviet governm ent a s its objectives coincided with th eobjectives of the Nationality policy of accelerating econom ic, and more particularly,industrial developm ent in the erstwhile colonies of Impe rial Russia. T he policy, asofficially stated envisaged a m ore e ven distribution of the productive forces over thecountry for overcoming the social, educational and econom ic backwardness of thenational republics and regions.


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- ~ c r d . p l a t d ~ - n 2.4.3 The Third Five Year PlanTh e Third Five Ye ar Plan began in 1938under very special and grave circumstances,not only for the Soviet Union but also for the whole of Eu rope , as the Nazi Germ anywas preparing fo r war , and even tual ly i t was the ~ e r i a nttack which put a stop to alleconomic develop ment of the Soviet Union for a long time to com e. I t is very difficultto state categorically t o what extent th e third plan was influenced by the req uirementsof the defence preparedness of the USSR- hat would have been th e structure ofallocations and the priorities of the planners, ha d th e war not loomed so large over thewhole of Eu rope . Tran port, chemical and heavy industries were the main thrust areas.Th e emphasis was again on the developm ent of heavy and defence industries, light andconsum er goods industries being again neglected.It was expected that the growing industry and migration would co ntinue to exertpressure on the transport sy stem, and that th e existing capacity would prove ina dequ ateto cope with th e demand generated by a n expanding economy for the services of thetransport sector. Thus, in th e Third Plan; major improvements were to be conducted inthe railways in terms of extension of tracks and technical upgradation. Th e firstestimates included an increase of about 7000miles in the total m ileage of the railwaytracks. A considerable portion of the m ileage was designated to be conve rted intodouble tracks. T he target for the double track was set at 5000miles. Over o ne thousandmiles of tracks were now planned to be electrified.A s mentioned ea rlier, the light and consum er goods industries were the main losers. Itis estimated th at of the total investments which were s et aside for the industrial sectoras a whole, only abo ut 15 per ce nt, the same as under the First Plan, were diverted tothe light industry. T he light industry, as a res ult, could show only a m odest g rowth; itsoutp ut showing an increase of 69per cent over the period. Apparently th e threat of waran d the need fo r accelerated arm amen t restricted th e planners! choices and they wereforced to postpone the shift in the investment structure d uring this period in favour ofthe light industry. Th e resources' which would otherwise have g one toward s increasingthe capacity of th e light industrial sector, were now reverted to exp anding the capitalequipm ent in the heavy industry.Th e overall economic results for this period cannot be characterised a s substantial. Onthe contrary, they seem to be very modest when they ar e compared to those of thepreceding decade, an d especially th e Second Plan. Du ring the three year period of theThird Plan , the total national income increased by 30 per cent. Th e growth rates ofmany industries showed only a marginal increase over the ra tes characteristic for thefirst two plans- the production of steel in 1940remained at the level of 1938; he outputof pig iron and oil also showed marginal increase over th e level achieved by th e end of1938.Th e industrial output could only show an increase of 14per cent per annum. T heindustrial sec tor, as a whole, could only show an increase of 44 per c ent in its grossoutput over the three year per iod, the b e a k up between the heavy industry and thelight industry (group A and group B industries) being 50 per cent and 33 per centrespectively.

12.5 LETUS SUM UPDuring the period immediately preceding the First Five Yea r Plan , the economicconditions had eased to an extent which allowed th e government to attend t o the taskof r a m l y hanging the foundat ions of agricul ture in the country . The purpose was totransform it into a highly productive large scale sector utilising mod ern methods,equipment and m achinery. There were de ep divisions in the party on this issue, whichas the events showed w ere, in fact, divisions on funda mentals of econ omicdevelop ment. T he su pporters of th e large scale colledtive agriculture finally prevailed,an d the g overnm ent initiated the process of collectivision of agriculture, which was tohave far-reaching consequences.Simultaneously, serious discussions were being conducted on th e issue of the ro le ofplanning in their de velopm ent process. I n th e course of these discussions, two basicparadigms of planning were formulated : the first on e c nsidered that planning must bedirected by consumer deman d and conducted in a broa ,1niarket framework; the o ther,I


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on the contrary, proposed planning t o be directed only by the objectives set by th e ~ ~ ~ r r r b p agovern ment, trying t o overcome the mark et constraints in the process. In th e final 1 ~ 1 9 4 1analysis, the second group prevailed and th e system of a centrally plan ned eco nom y,thus evolved came to be known as the command economic system.Th e implementation of the National Plans started in 1928and continued uninterruptedup t o the outbreak of the war with the Nazi Germany in 1939. This period was on e ofgreat difficulties, but also of spectacular ach ievemen ts, especially in developing th eheavy industry base of th e economy. O n the whole th e Soviet.Union remained farbehind t he industrialised countries of the W est, but the g ap dividing them wasprogressively closing down:

12.6 KEYWORDSArtel:A system in which the me mb er peasants cond ucted the ir farming collectively andshared the yield from the agricultural land which was now held in common withcommonly owned implements, while their houses and h ouse gardens continued t obelong to each m ember separately.Geneticists:Economists who supported planning within a broad market framework.Sovkhozy:State owned farms.TeoIogists:Economists who supp orted the primacy of planning.Texpromfinplan: Operationa l plans for the industrial enterprises.

12.7 SOME USEFUL BOOKSCarrE.H., and R .W. Davies, 1969,Foundations of a Planned Economy, Vol. 1and 2,London.Do bb, Maurice, 1960.Soviet Economic Development Since 1917. London.Erlich, Alexander, 1960. TheSoviet Industrialisation Debate: 1924-1928,Cambridge.Jasny, Naum, 1961.Soviet Industrialisation: 1928-1952, Chicago.Jasny, Naum, 1949. Socialised Agriculture of the USSR, Stanford.

12.8 ANSWERS TO CHECK YOUR PROGRESSEXERCISESCheck YourProgress 11) Read section 12.3 to answer2) Read section 12.3 to answerCheck Your Progress 21) Rea d section 12.4 o answer2) Rea d section 12.4 o answer

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Unit-12 Russia III Soviet Economic Development 1928-1941