Introduction

The problems of the traditional model were well known for decades. In the USSR, reforms were advocated from the early 1930s (initially publicly, and later in confidential memos to the top leaders). However, the case for reform was rejected because in the opinion of the leadership the problems were outweighed by the big advantage of the traditional model. This was that it enabled resources to be concentrated on key investment projects. Actually implemented policies to overcome the problems began much later, and took on different forms in different countries. The Maoists argued that the way to do this was by internal political struggle, decentralisation to local political authorities and self-sufficiency. In the GDR, reliance was placed in the 1970s and 1980s on the reorganisation of industry into vertically integrated combines run by technocrats and with a considerable say in the plan compilation process. In the USSR under Brezhnev, stress was laid on the automation of planning and management, improved planning of technical progress, the reorganisation of industrial management, and, in the heyday of detente, import of technology, including turn-key factories. By the late 1980s, however, the predominant reaction to the problems of the traditional model was that of economic reform. By ‘economic reform’ was understood a major institutional change that replaced the traditional model of a socialist economy by an alternative model of a socialist economy that combined centralised state decision making with a market mechanism.

Background

The need to industrialise to overcome backwardness and to prepare for possible wars with industrialised opponents was not an original Bolshevik idea. It was also part of the reason for the industrialisation policy of Count Witte, Minister of Finance of the Russian Empire in 1892–1903, Chairman of the Committee of Ministers in 1903–5 and Prime Minister in 1905–6. It was also part of the motivation for the abortive modernisation efforts in late Qing (Manchu) China and the industrial policies of the KMT (Guomintang) government in 1932–7.

Despite thirty years of economic growth resulting from state support for railway building, an inflow of foreign capital and favourable world market prices for Russia’s agrarian exports (especially grain), the Russian Empire collapsed because it was weaker than its external and internal enemies. It was unable to mobilise the resources to defeat Germany in World War I or to feed adequately during that war the civilian urban population and the millions of men it mobilised for the war. Its initial failure to mobilise sufficient industrial resources meant that its soldiers, especially in 1914–15, lacked the equipment to fight successfully an industrialised opponent (its later poor performance seems to have been largely a result of poor military leadership). Its failure to mobilise sufficient financial resources led to rapid inflation. Its failure to adequately feed the civilian urban population and the army were major factors leading to the February Revolution. The demonstration of 8 March 1917 in St Petersburg which precipitated the February Revolution was primarily a bread protest by factory workers and housewives. The failure of the army to restore order in St Petersburg partly reflected liberal and socialist anti-autocracy propaganda, but was partly a result of the poor food which the government provided for the army in the winter of 1916–17 – a fatal mistake which was the immediate cause of the collapse of the autocracy.

The first edition of this book appeared in 1979. It reflected the world of Brezhnev and Mao. It attempted to sum up what was known at that time. It was widely used throughout the world. It was reprinted several times and there were translations into Dutch, Portuguese (in Brazil), Italian, Japanese, Spanish (in Mexico) and Chinese. The second edition appeared in 1989 and reflected the era of economic reform. This third edition appears at a time when socialist planning has become a historical phenomenon, about which we know much more, and about which we can draw better-informed conclusions. I have attempted to sum up the relevant literature of which I am aware, and provide a broad overview of the subject. For reasons of space it has not been possible to provide an extensive discussion of a number of important issues, such as planning education, medical care, urban development and the environment. However, these subjects are mentioned in the text, and some information about them is provided. Each chapter concludes with a list of suggestions for further reading which is intended as a guide for those who wish to delve deeper into the subject of that chapter. This new edition reflects a lifetime of thinking and writing about the topic. I hope it will be useful for a wide circle of readers.

I am grateful for helpful comments on one or more draft chapters from Vladimir Kontorovich, Mark Harrison, Max Spoor, Grigory Khanin, Peter Nolan, Julian Cooper, Donald Filtzer, Steven Rosefielde, Lennart Samuelson, David Stone, David Glantz, Joshua Andy, Erik van Ree and Patricia Ellman. I alone am responsible for any errors remaining. I am also very grateful to Alexei Ionov for research assistance, to Ceyla Tokbay for secretarial help, and to the University of Amsterdam for providing me with the facilities to write the book.

Characteristics of the traditional model

According to the Polish economist Brus (1972: chapter 3), an early and justly famous analyst of the traditional model, its main features were as follows:

1. Centralised decision making. Practically all decisions (except for individual choice in the fields of consumption and employment) were concentrated at the national level.

2. The hierarchical nature of plans and the vertical links between different parts of the economic apparatus. This meant that the whole economy was organised as a complex mono-hierarchical system in which higher organs gave orders to lower ones which disaggregated them and passed them on to their inferiors.

3. The imperative nature of the plans. This meant that the plans took the form of instructions, binding on the lower organs, rather than, say, forecasts which the enterprises were free to accept or reject as a basis for their decision making (as in indicative planning).

4. The predominance of economic planning and calculation in physical terms. The central role in the system was played by the physical allocation of commodities and the attempts by the planners to ensure that these physical allocations were consistent (i.e. that the planned allocation of each commodity was not incompatible with its planned production).

5. The passive role of money within the state sector. As a result of physical allocation, money played a subordinate role. For example, to obtain wanted commodities, it was far more important to have an allocation certificate than to have money (which could often be obtained automatically for plan purposes).

In a well-known paper, the US economist Grossman (1963) picked out the following key features of the traditional model:

1. Individual firms produced and employed resources mainly as a result of instructions from higher bodies (this corresponds to Brus’s third characteristic).

2. The hierarchical nature of the economy (this corresponds to Brus’s second characteristic).

3. The authoritarian political system in which it was embodied.

4. The bulk of the planning work was concerned with ensuring the consistency of the plans.

5. The planning was primarily physical planning (this and the previous feature together correspond to Brus’s fourth characteristic).

The share of investment in the national income

The traditional model was generally effective in mobilising resources for investment. That was a major reason why it was developed and maintained. Ofer (1987: 1784) argued that: ‘The most outstanding characteristic of Soviet growth strategy is its consistent policy of very high rates of investment … These high rates … are almost without precedent for such long periods.’ This argument was based on official Soviet statistics which, certainly in the late Soviet period, overstated net investment (Kontorovich 1989, 2001). Furthermore, even higher rates of investment were attained in China after it discarded the traditional model. Nevertheless, it is certainly true that high investment rates were attained for long periods, especially in the early years of the traditional model.

These high investment rates were possible as a result of institutions quite different from those of capitalism (Mau and Drobyshevskaya 2013: 38):

The case for collectivism

The case for collective, rather than private, ownership and management of land is simply one specific aspect of the general socialist argument for socialism rather than capitalism. Comparing socialist with capitalist agriculture, Marxists have traditionally considered that the socialist system has four important advantages. First, it prevents rural exploitation, that is, the emergence of a rural proletariat side by side with an agrarian capitalist class. Secondly, it allows the rational use of the available resources. Thirdly, it ensures a rapid growth of the marketed output of agriculture. Fourthly, it provides a large source of resources for accumulation. Consider each argument in turn.

Writers such as John Stuart Mill (1891), Doreen Warriner (1969) and Michael Lipton (1974) advocated organising agriculture on the basis of peasants or smallholders operating efficient, family-sized, farms. On the basis of theoretical and empirical analysis Marxist researchers have traditionally argued that this ‘solution’ to the agrarian problem is illusory. As Engels explained in his famous essay The peasant questionin France and Germany (1894): ‘we foresee the inevitable ruin of the small peasant’. The reasons for this were both social (concerning exploitation and class conflict) and technical (concerning economies of scale and technical progress). The former were clearly explained by Lenin in The development of capitalism in Russia ([1899] 1956: 172), his classic study of Russian rural society in the 1890s.

The critique of the capitalist international division of labour

The Marxist–Leninist analysis of international trade is analogous to the Marxist–Leninist analysis of the labour market. Where liberal economists see fair exchange and mutual benefit, Marxist–Leninists see unequal exchange and exploitation. Standard expositions of the traditional Marxist–Leninist perspective can be found in Lenin’s Imperialism, Sau (1978) and Carchedi (1986). From an analytical point of view, it is clear that each school focusses on a different aspect of reality. The former concentrates on allocative efficiency and the latter on the dynamics of inequality. From an empirical point of view, the real issue is what proportion of actual historical experience is explained by each of the models. A neat illustration of the view of capitalist international trade which underlies anti-globalist thinking was provided by Hymer and Resnick (1971), and is reproduced below.

Consider the standard problem of the gains from trade. To make the question more specific, we analyse the Mercantilist era (c. fifteenth–nineteenth centuries). The situation in the pre-capitalist countries with which Portugal, Spain, the Netherlands, England and France traded is assumed to be as depicted in Figure 9.1.

Objectives

The main objective of labour planning in the state-socialist countries was to facilitate the fulfilment and overfulfilment of the national economic plan by ensuring that the requisite types of labour were available in the right quantities and places and performed the necessary work. This involved developing the abilities of the labour force, so as to produce the right types of labour, and ensuring both a rational regional distribution of employment and the efficient utilisation of labour. Each of these objectives will be considered in turn.