The Rise and Fall of the Soviet Economy: An Economic History of the USSR from 1945

Published by EH.NET (October 2003)

Philip Hanson, The Rise and Fall of the Soviet Economy: An Economic History of the USSR from 1945. Pearson Education, 2003. xii + 279 pp. $32.00 (paper), ISBN: 0-582-29958-6.

Reviewed for EH.NET by Vladimir Kontorovich, Department of Economics, Haverford College.

In half a century, the Soviet economy went from being the envy of the Third World and a mortal threat to the First to total disintegration. The story is told here by Philip Hanson, recently retired Professor of the Political Economy of Russia and Eastern Europe at the University of Birmingham (England) and a leading expert on the subject.

He starts out by describing the peculiar organization of the centrally planned economy, which emerged in the 1930s and persisted until the very end, and then proceeds in chronological order. The author notices that the rise and fall of the Soviet economy and society was mirrored, on a smaller scale, within the reigns of Khrushchev, Brezhnev, and Gorbachev. Each started with high hopes and some economic improvement, and ended with disappointment and a weaker economy. There are two chapters for each General Secretary, one for the up phase and one for the down phase of the reign. There is also a chapter on the Brezhnev-Gorbachev interregnum, and a conclusion appraising the Soviet economic experience.

Hanson calls his book a work of synthesis, drawing on what other, mostly Western, authors have written about the Soviet economy (p. 2). But on some of the most important issues his analysis departs far from the received wisdom. The author argues that the underlying cause of the decline of the Soviet economy was the weakening of administrative authority over economic actors. As no ruler emerged able or willing to fill Stalin’s boots, relations between the layers of bureaucracy were getting ever more forgiving, and pressure on the workers was lightened for fear of riots. Economic performance deteriorated as orders became less demanding and their enforcement increasingly lax.

Hanson’s argument echoes the one put forward by Moore (1954, p. 71), when the study of the USSR was in its infancy. Yet as the discipline grew up, this idea was soundly forgotten. Most western analysts viewed political control over the economy, resource al-location by command, and administrative pressure as weaknesses of the Soviet economy, at least in the increasingly complex post-World War II environment. They saw reforms aimed at increased autonomy of managers and greater use of monetary indicators within the confines of the socialist system as the only solution to the economy’s woes, as did the more enlightened of their Soviet colleagues. The analysis of the recurrent Soviet reforms was the bread and butter of the profession (p. 41). Hanson looks at each of these reforms and their results and shows that at best they made no difference. (Policies determining resource allocation across sectors, such as Khrushchev’s boost to consumption, did sig-nificantly impact the course of the economy.)

In an unnecessary retreat from his own argument, Hanson remarks that the hypothesis of abating pressure as the main cause of the Soviet growth slowdown cannot be tested empirically. I do not see why. The relaxation of pressure consisted of a series of observable steps: the end of terror, decriminalization of tardiness and absenteeism, and a shift from piece rate to time rate in wage setting. It may have included the less frequent increases in output norms for workers, more frequent annual plan target revisions for the enterprises, and lower turnover of managers and officials. With today’s access to infor-mation, it would be possible to document these trends in detail and trace their impact on economic performance at the level of enterprises and sectors.

In another major departure from much of the literature he purports to synthesize, Hanson states that the military industry was the economy’s main sector (p. 31), and military par-ity with the West its main achievement. He also sees military competition with the West as a possible reason for the system’s demise (p. 248). While this point of view has been getting more attention recently, it was at best marginal in the Sovietology’s heyday. Western scholars, preoccupied with their own concerns, viewed the Soviet economy as an alternative model of economic development or a test of Marxist ideas, rather than as a massive arsenal.

There is only so far an author of such a wide ranging work can get away from the accumulated interpretations. Hanson argues that the Soviet economy was first of all a military economy, but his sources constrain him to tell a story centered on aggregate growth rates, consumption/investment tradeoff, and efficiency. He argues that the main plot of the post-Stalin years was the waning of administrative pressure, but his sources constrain him to tell the story of reforms. Much research needs to be done before a de-tailed history of the Soviet economy as a military economy with waning administrative pressure can be written.

One instance in which the synthesized material exerts its pull on the author is avoidable. Thus, in the discussion of the causes of the growth slowdown, Hanson uses the CIA capital stock growth series to estimate total productivity growth, as has been the common practice in the field. Yet these data, copied without change from the official Soviet source, were in current prices, hence exaggerating the growth of capital and leading to the underestimation of the growth of total factor productivity (Kontorovich, 1988). This is ironic because in the 1980s Hanson was among the few scholars to question the CIA’s belief that the Soviets somehow deflated their capital stock and investment data, even though all their manuals and textbooks said otherwise (Hanson, 1984).

The book is intended for the general reader, and this does not just mean the avoidance of specialized terminology. The writing is graceful and witty. Hanson uses fiction and memoirs to supplement his sources in dealing with the period when honest social re-search was banned. The description of the economic system, which precedes the histori-cal account, makes the book self-contained and a good textbook for undergraduate classes.

References: Hanson, Philip, “The CIA, the TsSU and the Real Growth of Soviet Investment,” Soviet Studies, 36 (4), October 1984.

Kontorovich, V., “Inflation in the Soviet Investment and Capital Stock Data,” Soviet Studies 41 (2), April 1989.

Moore, Jr., Barrington, Terror and Progress USSR: Some Sources of Change and Stability in the Soviet Dictatorship (Harvard University Press), 1954.

Vladimir Kontorovich is a professor of economics at Haverford College. He has co-edited two books on the causes of the Soviet collapse.