Why Soviet planning collapsed

From Business Standard, September 4th 2010

Janous Kornai, the Hungarian economist, described centrally controlled economies in his classic work, Contradictions and Dilemmas: Studies on the Socialist Economy and Society, as a system in which “to search, to wait, to queue, or to go for forced substitution” wasthe norm. This was translated into a Moscow joke in the late 50s as the Six Contradictions of Socialism: 1. Under socialism, everybody has a job but nobody works.

2. Nobody works but the plan was always fulfilled.

3. The plan was always fulfilled but there’s nothing in the shops.

4. There’s nothing in the shops but the table is always full.

5. The table is always full but everybody complains.

6. Everybody complains but nobody wants to change.

The subtext of the joke (there were many such) was simple: “Don’t believe a word of what you hear; trust your eyes only” because the reality of daily life in the Soviet Union was very different, as it was in other command economies. Francis Spufford, who is a noneconomist but a novelist with a penchant for storytelling, has spun out a series of short stories on what killed the Soviet economy which can be described as “faction” (part fact and part fiction) in Red Plenty: Industry!, Progress! Abundance! Inside the Fifties’ Soviet Dream (Faber, Special Indian Price £13).

Read them to be better informed and entertained at the same time — anchored in a mix of history and economics, the factual references never weigh too heavily or interrupt the flow of the narrative. In fact, some of the fiction is more true to life than the heavy academic tomes that have appeared in the What-Went-Wrong-With-Central-Planning books in the Soviet Union and eastern Europe. But for all the literature that has appeared, none has been able to explain how such an all-embracing system died on its own when everyone expected that it would have to be killed. Spufford’s is an attempt using some fictional techniques to do so and it comes off brilliantly simply because at times truth can be stranger than fiction.

To begin with a comparison between an open market and a planned economy where bureaucrats, rather than the market forces, decided what goods and services would be supplied to whom and how much, what they would cost and hence priced. The pricing formula was also different. What was necessary first of all was to forget the way we do business; the Soviet system was the other with its own rules and regulations. It was the Gosplan (the state planning commission that made long-term economic plans) that decided consumption patterns. For example, how many summer dresses the women in the FarEast Vladivostok would be permitted to buy rather than what they could afford. The result was poor distribution that led to overstocking on the one hand and shortages on the other, leading to black marketing and/or wastage because no one was really responsible or accountable to anyone.

There is one point that Spufford is at pains to point out: there were plenty of Soviet economists beginning with the father of mathematical planning, Leonid Kantorovich, who wanted to put prices on things that bore some relationship to the labour, that is the costs, to make them. But they were overruled by the Party bureaucracy.

Later, as the economy grew in size and complexity in the 60s, economists wanted to bring computers into the system knowing that “rules like the tonne-kilometre target — whereby a factory that did its job by moving 100 tonnes of materials over 1,000 kilometres was thought more successful than a factory that achieved the same result by moving half the goods over half the distance — made no sense”. If some noises were made, they became muted with the discovery of vast reserves of oil in Siberia that assured a safe future and ruled out the need to be more productive.

Given this background, Spufford provides apiquant series of short stories to show how the system worked in practice and the colossal waste it generated. No one was really bothered and why should they have been because they were all in it for the good life. So, here is just a sample of the short stories that, taken together, give a vivid picture of how the system actually worked.

Maksim Mokhov is a laid-back bureaucrat in Gosplan. He is assigned to help out arayon fabric factory where one of its machines had been destroyed in an accident. A replacement has been ordered from its Urals factory but it has refused to give an updated version without which the production quota allotted to it couldn’t be fulfilled. Enter a middleman working outside the official channels to fix the bureaucratic tangle but it transpires that there is a whole web of conspiracy surrounding the accident and the delay in supplying the replacement machine. The story illustrates how a parallel universe of criminals, Spufford calls them “lawful thieves”, ran the Soviet economy.

Spufford has a string of stories how “lawful thieves” infiltrated every nook and corner of Soviet society and why it was necessary to have Party contacts to get even the simplest things like painkillers, contraceptives, soap and toothpaste — let alone bigger things like a flat or medical care. Spufford’s fictional Khrushchev understood that things had to be ordered differently and the command economy had to go if ordinary people had to live well.