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Farm to Factory: A Reinterpretation of the Soviet Industrial Revolution (Princeton Economic History of the Western World)

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The Soviet Union was the perfect failure, so said no shortage of people during and especially after its lifespan. So to argue the opposite, as Robert Allen's new book does, certainly presents a provocative hypothesis. Allen's argument is that from 1928 to 1970, the Soviet Union was one of the world's fastest growing economies, with few rivals in the world. By contrast, the high rate of growth under the last tsars was not sustainable. Collectivization seems to have encouraged industrial growth, though not enough to cancel out the horrible loss of lives from the 1932-33 famine. Unfortunately, unwise investment decisions in the seventies and eighties lead to rapidly falling growth rates and the collapse of the system.

Allen's argument does not start off well, as he seems to separate Russian development from Europe altogether. This coincides with Marshall Poe's argument that Russia shouldn't be considered European at all. This is misleading. It is true that in terms of poverty, rural population and demographic structure, Russia was behind the rest of Europe. But this does not mean that it was radically different from it. Russia is Christian, not Muslim. Russian is a Slavic language, and Slavic languages are European ones. Serfdom and feudalism are European institutions distinct from Ottoman and Moghul ones. However Allen soon gets back on track. The essential fact of comparative economic performance is that the high-income core generally stays the same, while those outside it fall further behind (relatively). Occasionally a country is able to enter the high-core club, like Japan, and occasionally another country is expelled, like Argentina. Given this stability, the Soviet Union's success from 1928 to 1970, where it outperformed all other developing countries except Japan, looks more impressive.

But wasn't economic growth high under the tsars? Surely would it not have reached the heights held by Western Europe? Clearly not, says Allen, since that would require an average 3.3 % growth rate from 1913 to 1989, a rate only held by one country, Japan. More to the point the Tsarist economic strategy faced severe problems. Russia's literacy rates were well below Japan's. Much of the growth in agriculture was the result of the wheat boom. Had Russia continued to be a wheat exporter it would have faced the disaster of the collapse of wheat prices in the Depression. Indeed, it would have made it worse. Argentina's own wheat boom did not last, and even wealthy Australia faced relative decline. Meanwhile the bulk of the railroad boom was over by 1913, while attempts to encourage a cotton industry were muddled by misguided protectionism.

Allen then discusses the crisis of the NEP. Given the limits of Soviet soil, agricultural output could not be easily raised until the fifties, when fertilizers became readily available. On the other hand agricultural productivity could be increased by mechanization and the now surplus agricultural labour could be diverted into industry. Potentially there is no conflict by increasing the investment needed for mass industrialization and increasing consumption. Both can increase at the same time. For Allen a key element to the 1928-1939 period was the use of "soft budget" constraints. Instead of basing the number of workers on simple budgetary constraints, constantly raising targets and increasing the demand for workers could increase growth enough that it would compensate for the deviations from strict accounting. Collectivization's contribution to this process was not the increasing of agricultural production; indeed, it dropped dramatically. Instead it encouraged, or more accurately forced, rural-urban migration and the growth of industry. Rather ironically the mass slaughter of horses to protest collectivization was not an unmitigated disaster, since it diverted grain from a rather "inefficient" animal. At the same time the Soviet Union benefiting from slower population growth. Much of this, of course, was the result of Stalinist terror, though nearly three times more important was the result of the Second World War. But even more important was the relatively quick fertility transition. Had it more resembled India the former Soviet Union would have had a 1989 population of 825 million. Allen then goes on to discuss standards of living from 1928 to 1939. They did seem to increase during this period. Previous studies suggested that they fell or stagnated, but Allen makes the reasonable argument that the index numbers they used miscalculated inflation and the effect of rural-urban migration.

So far, so good. But there are some problems. Allen's book is based on secondary literature and all Soviet statistics have a provisional nature. Allen then goes on to argue that Stalin's industrial strategy was more effective than a possible continuation of the NEP, but not so more effective to justify the loss of lives in the famine. This is not an unreasonable or inhumane argument. On the other hand, it would have been far more effective than a simple capitalist standard. This argument is based on complex computer simulations, which are difficult to read, and even more difficult to verify. Given that the Soviet Union would have been radically different if it had not followed Stalin's strategy in 1929, Allen's simulation models seem too simple. The last chapter deals with the decline of the Soviet economy after 1970. Allen delineates several crucial flaws: attempts to upgrade old factories when it would have been more productive to create new ones; increasing energy production with illusory success at prohibitive cost, when it would have been wiser to increase conservation; the harmfulness of soft budget constraints in a period of labour scarcity, and finally diversion of research and development into the military. These are interesting suggestions; we will have to see how they play out.

Robert Allen has done what few people have attempted - defending Soviet, in particular Stalinist, industrialization policy from the viewpoint and with the methodology of orthodox neoclassical economics. In so doing he reacts particularly against the works of Paul Gregory, the main academic defender of the thesis that the Czarist system would have developed Russia faster and better than the USSR did. Allen takes great pains to refute this position.

Allen shows that the Stalinist policy of industrialization followed the strategy laid out by Preobrazhensky, namely to use terms of trade between agriculture and industry to use the agricultural surplus for investment in heavy industry. All the heavy industry production would then be reinvested in that heavy industry, leading over time to a very fast and strong development of industrialization in the USSR. Although this meant in the short term that living standards, as measured by consumption of consumer goods, would increase but little (and even drop during certain periods), in the long run the result would be that the industrial capacity so built up could be used for production of consumer goods eventually at a much higher level than would otherwise have been the case.

This has always been much contested by most economists, both socialist and anti-socialist, especially since the system of NEP seemed to perform decently well and created much more stability than the Stalinist heavy industry planning did. Nonetheless, Allen shows through modelling the different factors involved in simulations of alternative paths that the Preobrazhensky strategy was entirely correct, and indeed had the required results. In fact, Allen argues contrary to most historians of the Soviet 1930s that living standards generally did not even drop during this period, with the exception of the years of collectivization of agriculture.

This collectivization is also a subject he addresses, where he, again against almost everyone else, finds that it had a slight positive effect, because it made the marketing (in the sense of bringing into circulation) of agricultural produce much larger proportionally and much easier. This solved the recurring problem in the early USSR of ensuring the peasantry sold sufficient of their produce to feed the large urban population, despite the living standards of the Soviet peasants being low. As Allen shows, there was also a great excess of manpower in Soviet agriculture, so the mechanization that accompanied collectivization allowed millions of redundant peasants to move to the cities. It is this generation of peasants-turned-cadres that would form the main basis of support for Stalin and his policies, as is confirmed by Fitzpatrick and others. Of course, given the enormous human cost of collectivization and the famine that followed it, it is still dubious whether the undertaking was overall worth it. In his simulations Allen also traces alternatives such as industrialization without collectivization, which performs slightly worse, a continuation of NEP, which performs significantly worse but still well, and a 'capitalist path' where unemployment was possible and every individual company had to be profit-making; as one could expect, this path works by far the worst. In fact, because the wheat and railroad booms that buoyed the Czarist government in the period 1905-1914 would have ended in the 1920s, a continuation of this road would have brought Russia no further than the level now shown by Mexico or Argentina.

The final part of this book contains a much smaller and less detailed discussion of the failures of the Soviet planning models in the late 1970s and the 1980s. The author here makes various subtle and interesting arguments. Firstly, he points out that investment put into military production and upkeep was from a purely economic point of view practically entirely wasted, mostly because it came at the expense of investment in other types of heavy industry than armaments, which the USSR dearly needed. The enormous losses of WWII also contributed here, with much capital being destroyed. A second result here was the enormous costs in manpower for the USSR of their almost Pyrrhic victory in WWII - the end of large quantities of newly free labor coming in from the countryside limited the expansion possibilities of all labor-intensive industry, which the USSR had hitherto relied on. Here again appears as useful the model of Soviet economics developed by Abram Feldman, which explored the interaction between capital and labor and how extra capital in a poor country like the 1920s USSR could lead to a positive feedback loop effect if invested in heavy industry (i.e. production of more 'capital'), since every unit of capital in such a situation led to vastly larger increases in output than every new unit of labor. From the late 1960s on labor, however, became the main constraint in output, and the old Preobrazhensky accumulation strategy no longer worked.

The main question is of course why the Soviet government did not adequately respond to this, and here Allen is for the first time severely critical: he identifies a number of major planning and investment errors on the part of the Brezhnev leadership. The most important of these is the wasteful retooling and upkeep of old industry where the production of new modern industry would have been more efficient, and secondly extremely wasteful unproductive investment in raw materials production in Siberia. This latter part was the result of the minerals and oil production in European Russia, the Ukraine etc. being largely depleted, so expansion had to be sought in Siberia, where costs were vastly higher. Coal production in the Donbass region peaked in 1976, after which the Soviet government was forced to massively invest in lignite (brown coal) production in Krasnoiarsk. Brown coal is not very efficient and the costs of operating in a vast desolate area as central Siberia are high, so that productivity of capital invested plummeted. Much the same applied to oil. Only natural gas production was something of a success story, which can still be seen today in Russia's position as major exporter of natural gas to the European continent.

Allen negatively compares this autarkic development strategy to that pursued by Japan, which had much fewer natural resources after WWII, but nonetheless greatly expanded its industrial production in these sectors by importing the raw materials. Drops in transport costs after the war made this profitably possible. Of course, the USSR, as Allen acknowledges, had political reasons for indigenous development even at higher costs, where Japan could operate entirely as an American vassal. It must be said though that Soviet energy use was very high per $1000 of GDP, and that conservation programs and saving the natural environment mostly failed due to the antique state of much of Soviet industry and the enormous scale of its factories. Short term "shock" responses to these problems by Brezhnev and successive governments only made the situation worse. Here Allen points to systematic deficiencies in proper cost accounting and saving, which had (correctly) not been a priority in the 1930s, but had to become one in the 1970s. The Soviet political system at that time was not very well-suited to adapt to this, and Brezhnev et al.'s 'dropping the ball' on these major economic reform issues played a large part in the fall of this system. Allen emphasizes though that it was not planning as such that failed, just that the plans were bad. These analyses are also along the lines of those provided in Paresh Chattopadhyay's excellent study of Soviet economic policy.

Overall this book is an excellent and highly stimulating discussion of Soviet industrialization programs and their beneficial effects as well as their failures. It is decidedly non-political and does not enter into any ideological question, but despite its thorough orthodoxy in methods, it is nonetheless very sensible - indeed Allen shows that such methods CAN be used in an intelligent manner when one really wants to. It must also be mentioned that poor Preobrazhensky had little benefit from the success of his strategy: he was shot in 1937.

A very interesting and well argued revisionist history of Soviet economic performance. Allen uses a careful review of the existing economic literature and some economic modeling to examine the relative success or failure of Soviet economic policies. He focuses particularly on the importance of the Stalinist centralized push for rapid industrialization. An important and distinctive feature of this book is Allen's use of models to examine counterfactual alternatives. Allen begins with the popular hypothesis that Imperial Russia would have industrialized without the intervention of the Communist state. Allen makes a convincing argument that Imperial Russia was an undeveloped country and would have continued along the trajectory followed by the great majority of undeveloped countries. Allen suggests that the ultimate outcome of a non-Communist development trajectory would have been an economy something in between India and most Latin American nations. In Allen's view, the Soviets achieved something quite remarkable

Allen turns next to the institution of the Stalinist industrialization in the late 1920s. Allen has a very interesting chapter on the debate within the party on the best way to pursue economic development. Talented Soviet economists developed models that predicted a centralized push for heavy industry would spillover into consumer goods and produce consumer goods and a rising standard of living. These economists argued also that the funds for this push would be realized by aggressive taxation of the agricultural sector, ie, the peasantry. The alternative was the New Economic Policy (NEP) of the mid-20s, supported by individuals like Bukharin who advocated a relatively marketized economy, with an independent agricultural sector in particular, and the state retaining control of the 'commanding heights' of industry. After consolidating power, Stalin proceeded with the centralized industrialization push, complemented by the brutal collectivization drives. Allen presents considerable analysis that, at least from the perspective of rapid economic development, Stalin chose correctly. The Soviet Union industrialized with remarkable speed, consumer goods production did expand, and standards of living did rise impressively. Its important to note that alongside with the remarkable cruelties of the Stalinist state, the Soviet Union made huge and succcessful investments in the Soviet citizenry in the form of very effective mass education. Allen employs some modeling to look at counterfactual alternatives from the 1920s onwards. A quick transition to a capitalist economy would not have been nearly as successful in increasing industrialization and raising standards of living. In Allen's model, the optimal path would have been centrally planned industrialization as done in the 5 Year plans with the agricultural policies of the NEP. Stalinist forced collectivization made only a relatively small contribution to economic development.

Allen argues well that Soviet economic success continued up until the end of the 1960s. The stagnation of the Soviet economy occurred after 1970. Allen's analysis of economic stagnation is the weakest part of the book. Allen suggests that Soviet economic success could have continued if the central planners had made some better choices and that performance was impacted adversely by the burdens of the Cold War. Despite his efforts, I'm not convinced that Allen's explanations are actually that different from conventional explanations stressing the inadequacies of central planning versus a market economy. As argued by many, including Gorbachev and many others, the central planning model was crucial to achieving a modern society but not suited to maintaining a modern economy.

Allen's reconstruction of Soviet success and failure has some interesting implications that he doesn't explore. His analysis suggests that the Soviets could have mitigated or avoided economic stagnation by loosening central planning, reducing the very large burden of military competition with the USA, and opening the Soviet economy to international trade. Allen's implicit model is that a developing nation can achieve modernization by centralized Soviet style hothouse industrialization and mass education followed by liberalization and engagement with the global economy. In a number of relevant ways, this is the Chinese path, suggesting that Allen's analyses are basically correct.

Another interesting counterfactual is too think about what would have happened in WWII without the Stalinist industrialization. If Bukharin had won out over Stalin, would the Soviet Union have had the industrial resources to resist the Germans?

Russia under Stalin had high growth rates which continued after his death into the mid 70s. From that point on the economy stagnated and its failure to grow was one of the reasons for the collapse of communism. Commentators have made a number of suggestions about the Russian economic performance. They are that the achievements under Stalin were not worth the considerable cost as a capitalist system would have achieved the same growth rates. The other is that a command economy is fundamentally non functional and carries in it the germs of failure. This book looks at both assumptions. The method for measuring the performance varies. In looking at the likely growth rates under a capitalist system the book looks at the performance of similar countries. To evaluate the performance of the economy in the 20s and 30s the book relies in an economic model. In evaluating more generally the reason for stagnation the method is to look historically at what led to falling growth.

The book is strong when it discusses the likely growth that Russia would have had if it remained capitalist. It is like a number of countries, Australia, India and Argentina which had high growth rates due to the development of modern transport such as railway and steam powered shipping. Russia was able to export grain, the development of its rail network created a demand for steal and the increased wage growth led to the development of a protected textile industry.

After the war world trade started to decline. This led countries which were dependant on agricultural exports to either stagnate or contract. Australia, India and Argentina are examples. The Russian textile industry was not cost competitive and if it and the agricultural sector were not expanding it is hard to see how there would be a demand for iron.

The tactic that Stalin used to industrialize Russia are well known. He initially used agricultural surpluses to import machinery. This was done by collectivization and the replacement of horse driven machinery with mechanization. Peasants were educated and went off to the cities to be part of the industrial work force. This led to a massive social transformation with the end of peasant farming and the building of large cities. It did come at an enormous cost. The peasants resisted collectivization by killing their animals and limiting agricultural output. Stalin deliberately starved millions of them to death.

Whilst brutal and monstrously inhumane the program led to very high growth rates. To give this some perspective the growth occurred during the depression when most other economies were stagnant.

The book uses a economic model to see if the growth achieved might have been achieved by other means. Bukahrin one of Stalin's opponents suggested that rather than collectivization it would be possible to finance industrialization through a tax on agricultural output. The model suggests that although this might achieve some considerable growth this would have been below that achieved as the income of the farming sector would have increased over time slowing the movement to the cities.

Lastly the book looks at the Russian economic collapse. It concludes that rather than the system being inherently poor at resource allocation the problem was poor management decisions. By the late 1970s large numbers of mines that produced iron coal and the like for industrial towns started to be depleted. The government made poor capital decisions about relocation of enterprises and it continued to run plants that were becoming obsolete.

The book is an interesting exercise in counter factual history. It is also a good introduction to understanding the period.