Nafziger on Harrison, eds., _Guns and Rubles: The Defense Industry in the Stalinist State_

[Book Reviews in Economic and Business History]

Published by EH.NET (December 2008)

Mark Harrison, editor, _Guns and Rubles: The Defense Industry in the 
Stalinist State_. New Haven, CT: Yale University Press, 2008. xxvi + 272 
pp. $50 (hardcover), ISBN: 978-0-300-12524-5.

Reviewed for EH.NET by Steven Nafziger, Department of Economics, 
Williams College.


Beginning in 1990, the easing of Russian archival access opened the 
inner workings of the Soviet command economy to study by modern economic 
historians.  The resulting research frames the Soviet system as a nested 
hierarchy of self-interested principals and agents, glued together by 
the dictatorial regime consolidated under Stalin (see the discussion in 
Gregory and Harrison, 2005). Unlike much Cold War-era scholarship, these 
studies emphasize the prevalence of informal markets and self-interested 
competition over scarce resources within the command system. At the same 
time, recent scholarship reinforces the picture of the Soviet economy as 
being rife with incentive and information problems in the absence of 
true market competition and private property rights. In _Guns and 
Rubles_, Mark Harrison, Professor of Economics at the University of 
Warwick and a “party leader” of the new cadre of economic historians of 
the Soviet Union, has edited a volume of archival studies that 
investigate how Stalin’s defense industry was structured and developed 
over time. The result is a richly documented and richly rewarding 
collection of papers on a central but secretive component of the 
Stalinist economy.

In nine substantive chapters, Harrison and his colleagues collectively 
explore _why_ Stalin wanted a large defense sector and _how_ the 
production and allocation of military goods actually took place over the 
first four decades of the Soviet Union. In the first chapter, Harrison 
interprets defense expenditures and repression as imperfectly 
substitutable tools of a Dictator (Stalin) interested in maintaining 
power. The latter tool worked quickly and was most effective against 
internal threats, while military build-up required a longer time period 
and was aimed at external enemies. Harrison convincingly argues that 
increasing military expenditures in the 1930s and 1940s (to the 
detriment of other types of spending) actually headed off internal 
dissent to Stalin’s authority by reducing external threats.

The second chapter, by Andrei Sokolov of the Russian Academy of 
Sciences, steps back to provide historical background to the Stalinist 
system. Sokolov posits a simplified model of defense procurement where 
the Army “purchased” weapons from the Industry under the watchful gaze 
of the central authorities. Out of this framework, he identifies the 
roots of Stalin’s industrial policies in the organization and 
mobilization of the defense sector in the mid-late 1920s. This simple 
model informs the rest of the book, while usefully avoiding much of the 
alphabet soup that was the Soviet economic system.

The third and fourth chapters focus on the industrial organization of 
the defense industry under Stalin. Harrison and Andrei Markevich (a 
fellow of the New Economic School in Moscow) first summarize how the 
command hierarchy, “internal” markets (linking Industry and Army for 
particular defense products), and “real” markets (supplying labor and, 
occasionally, investment funds) enabled growth in defense production 
over the 1930s. They clearly outline (with the help of some simple but 
useful microeconomics) the key information and incentive problems that 
characterized the Army-Industry relationship, especially in regards to 
unverifiable quality of military goods. Stalin did not look to solve 
such information problems through the integration of the Army with 
Industry because he was wary of creating a strong alternative to his own 
power. In chapter four, Markevich goes on to analyze the planning 
process within the defense sector. Mobilization and “normal” operational 
planning occurred simultaneously and alongside planning for the civilian 
sectors. The result was chaotic, with much of the actual organization of 
defense production taking place under decentralized producer (individual 
defense enterprises) to consumer (various military branches) contracting.

Chapter five, by the eminent scholar R.W. Davies, focuses on how 
planning for military mobilization affected the defense sector and 
Soviet economy in the 1930s. Most actors in the Stalinist economy were 
required to produce production and/or consumption plans in the event of 
a war. These constantly revised plans played a role in the allocation of 
investment funds and led to the creation of excess capacity in 
defense-related production. Davies provides a narrative that delves into 
the mobilization planning of two industries: small arms and artillery 
and tanks.

Chapters six through eight look into how specific markets functioned 
within the defense sector. In chapter six, Harrison and Markevich 
analyze the problem of ensuring quality in the two-sided market of 
weapons production. The authors identify a hold-up problem, whereby 
Industry was forced to produce a certain quantity but could shirk on 
quality that was costly or hard to verify. The Army responded by sending 
agents into production facilities, creating a collusive equilibrium that 
ensured quality but reduced production. In chapter seven, Mikhail 
Mukhin, a research fellow in the Russian Academy of Sciences, explains 
how poor working conditions and incentives in the aircraft industry were 
inadequately dealt with in an environment of large technological change, 
rapid growth, and high labor turnover. In chapter eight, Harrison 
investigates how the uncertainty of innovation was dealt with in the 
market for aircraft propulsion. Engine designers used their 
informational advantages to draw out funding from the Army and the 
Industry, but the threat of repression and self-motivation discouraged 
poor quality innovators from predominating (as would be in a classic 
lemons problem). Costly failures such as steam engines for aircraft did 
initially tap scarce funding, but the “chaos” of the early 1930s 
eventually gave way to more focused research on jet propulsion and 
rocketry.

In the final substantive chapter, Harrison analyzes why Stalin and the 
Soviet state instituted such an extreme, all-encompassing doctrine of 
secrecy, especially when it came to the defense sector. He notes that 
this policy was in line with the Tsarist heritage and Bolshevik 
traditions, only much more extreme. Harrison argues that official 
secrecy not only reduced gains for individual deviations from commands 
but created an environment where Industry and the Army could more easily 
exploit their informational advantages. In the absence of political or 
market competition, the result was that individual actors were willing 
to go along with the secrecy without imposing too many costs on overall 
productive activity. A short afterword concludes the book by drawing 
attention to the relative success of Stalin’s defense industry in 
stopping Hitler while avoiding the collapse of the Soviet Union during 
World War II.

_Guns and Rubles_ makes astonishing use of hundreds of archival 
documents to shed microeconomic light on the early decades of the Soviet 
defense industry. The chapters are well-written and cohere nicely, 
although the tones and analytical styles do differ considerably between 
authors. While this reviewer found the volume enlightening and greater 
than the sum of its parts, more of an effort could have been made to 
provide some historical or comparative context for the general reader. 
For instance, just how distinctive was the Soviet defense sector 
compared to other economies? Given that excessive military spending is 
often suggested as a cause of the Soviet economy’s decline after 1970, 
did developments under Stalin set the stage for this? And finally, how 
do the microeconomic models put forward in _Guns and Rubles_ fit into 
the theoretical frameworks put forward by F.M. Scherer, William P. 
Rogerson, and others who have worked on the problems of defense procurement?

_Guns and Rubles_ complements, but does not substitute for, other recent 
studies of the Soviet command economy and defense industry. 
Non-specialists would also benefit from considering Gregory’s study of 
the Stalinist economy (2005) and Harrison’s other works on military 
production and the defense sector (e.g. Barber and Harrison, eds., 
2000). At the same time, Mark Harrison and his colleagues have provided 
a fascinating study that sets the bar for careful, archive-based 
scholarship in the economic history of defense production and the 
Stalinist system.

References:

Barber, John, and Mark Harrison, eds. _The Soviet Defense-Industry 
Complex from Stalin to Khrushchev_. London: Macmillan, 2000.

Gregory, Paul R. _The Political Economy of Stalinism_. Cambridge: 
Cambridge University Press, 2004

Gregory, Paul R., and Mark Harrison. “Allocation under Dictatorship: 
Research in Stalin’s Archives.” _Journal of Economic Literature_ 43, no. 
3 (2005): 721-761.


Steven Nafziger is an Assistant Professor of Economics at Williams 
College. He is currently involved in a number of projects on the 
economic development of Tsarist Russia.

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