The 2 Simple Reasons the Soviet Union Was Doomed to Fail

http://www.aei.org/issue/25991

by tvorryn • 16 years ago

86 98 16 years ago

iwr4• 16 years ago

The inevitable failure happened not because of particular details that the central planners disregarded, but because there WERE planners in the first place. The market has a network-optimality aspect to it that a monolithic institution cannot replicate.

tvorryn• 16 years ago

I agree with you there, because of the inefficiencies of the system they were in, they were bound to make a fatal mistake. Once they had, these two problems made the collapse inevitable, no matter what Garbachov or the counter revolutionaries did. I find the inevitability of the fall very interesting. Reminds me a little of Hari Seldon's psychohistory from his Foundation Series. http://en.wikipedia.org/wiki/Foundation_series

arethuza7• 16 years ago

One thing I've wondered about is that when viewed from the inside, large organizations look like centrally planned economies - capital is allocated centrally and there is often quite strong command and control structures.

So why do large companies manage to run centrally planned systems whereas centrally planned states seemed doomed to fail?

coryrc• 16 years ago

Because they do, indeed, fail quite often.

Examples abound in the last economic downturn.

cstross3• 16 years ago

Part of the mythology of western capitalism (as it is practiced) is that it's 100% market based. But as you've noticed, it's actually a whole bunch of centrally planned hierarchical petty dictatorships bumping and grinding like boulders in a sea of small businesses like sand grains. Sometimes one of the small businesses will swell up and become a boulder, and sometimes a boulder will crumble.

The main advantages of the market seems to be that failure is usually localized and containable -- although we came frighteningly close to a widespread meltdown in 2008 -- and, arguably, markets are better at promoting information flow and responding to new demands (although I suspect the growth of IP law and the existence of trade secrets counteract this to some extent).

But it's worth noting that the mean life expectancy of a publicly quoted corporation is around 30 years -- and the USSR made it through just over seven decades.

iwr4• 16 years ago

That may be the reason that large organizations are difficult to maintain. How many of the Fortune 500 companies today were still there 4 years ago?

As an organization grows, it requires people in support structures that are less linked to the ultimate bottom line. Ludwig von Mises proposed the idea that an organization requires a level of bureaucracy, in the absence of market signals. So to the extent that an employee is removed from from the direct market operations of the company, a bureaucracy is required.

Now, the reason companies don't outsource all their work to bidding contractors is that there is some value in holding resources in reserve. A bid-contractor is only as good as the next assignment, he may leave for another company when you need him the most. The solution is to have a contract where the particular individual will reserve his time and energy to one company (a.k.a. an employee). The employee will be effectively "slacking off", but will be on call for when his resources are needed.

forgottenpaswrd• 16 years ago

That is because they are, but in my country 99% of the business number and 70% of the economy are small and medium companies. When MS wants to make kinect or Apple wants to add sound recognition to the Iphone they buy it from small companies.

GM should have collapsed, all the megabanks and companies that were too big to fail show us how central planning works without control.

Some things need central planning(mass production), communism is state capitalism with only one megacompany. That is a supermonopoly.

I have friends that were in communist Russia, if you made -talked something that upset some member of the party(they were God), depending on the offense, you, your sister, your son won't be able to work anywhere(there is only one company after all). Nothing else was needed to control every one.

cubix• 16 years ago

The command structure may be there, but not the element of control.

An employee is free to resign if he would prefer to work for someone else. He can't be sent to a gulag. Customers aren't forced to accept a company's product or service, and can choose a competitor instead. Managers can fire incompetent or insubordinate workers. Customers can criticize a product without fear of being shot.

Customer, manager, employee, investor -- everyone is in the situation voluntarily, so they must negotiate on the basis of mutual self-interest. The company as an entity is more stable because its constituents aren't essentially at war with one another.

Symmetry3• 16 years ago

First, they do often fail and are replaced by new companies where sclerosis hasn't set in yet.

Second, even huge megacorps are tiny compared to countries. Microsoft is about the same population as Antigua and Barbuda, and if Antigua and Barbuda tried to go the Soviet state controlled economy route I predict that they would be much more successful at it than the Soviets were because its much easier to govern a smaller country.

JabavuAdams4• 16 years ago

Because a single large companies can fail, without destroying society.

Imagine if the company was all of society.

What I'm more interested in is this idea of democracy (inefficent, but least of a number of evils) vs. enlightened dictatorship (efficient, sucks if your priorities are different from leader's).

Small is beautiful in part because you don't need to convince a lot of people with disparate motivations to do something.

The same pattern arises in startup vs. bigco, and visionary CEO vs. design by committee.

gamble• 16 years ago

The answer is that most large companies aren't run like centrally-planned economies. Executives may imagine themselves as generals at the head of an obedient army, but they are in reality deeply dependent on the actions of middle managers and employees. In fact, real generals are just as reliant on independent decisions of their officers and troops. Successful executives (and generals) are the ones who learn to balance top-down and bottom-up decision-making. The largest companies are perpetually engaged in a game of consolidation and reorganization into more independent entities.

cstross3• 16 years ago

Ah, no. The planners were fully aware of the economic calculation problem and tried to make an end run around it by building a networked real-time system for matching supply and demand (from their perspective, markets are "lossy" information transfer mechanisms that permit local inefficiencies, such as failing companies). However, they failed because of systematic falsehoods being injected into the system by managers -- who were afraid to tell the truth (in the wake of Stalin's terror). This is covered by Francis Spufford's book, "Red Plenty". Review here: http://www.guardian.co.uk/books/2010/aug/08/red-plenty-franc...

miked• 16 years ago

However, they failed because of systematic falsehoods being injected into the system by managers -- who were afraid to tell the truth...

Hedrick Smith gives many examples of this kind of lying in his book _The Russians_. While that's certainly part of the problem, I think you're missing the deeper issue that the parent is pointing to: the amount of bandwidth necessary to do efficient economic calculation is far greater than what can be done by a committee of nomemklatura and their computers. They simply don't have the fine level of data detail and massively parallel computing power that a distributed economy provides.

lionhearted• 16 years ago

Good article, misleading title. Lots of interesting information.

The article is fairly serious, but has some dry humor mixed in. This line was the funniest:

> In the 1970s and early 1980s, the Soviet leadership, however, was not intellectually prepared to heed lessons from the School of Salamanca. The shortest quotation about the intellectual capacity of the Soviet leadership came from the Politburo minutes: "Mr. Zasiadko has stopped binge drinking. Resolution: nominate Mr. Zasiadko as a minister to Ukraine."

_b8r0• 16 years ago

Russian humour has always been very dry. My favourite type of Russian humour is called anekdoty, one of my favourite Russian jokes:

A night watch spots a shadow trying to sneak by. "Stop! Who goes there? Documents!" The frightened person chaotically shuffles through his pockets and drops a paper. A soldier picks it up and reads slowly, with difficulty: "U.ri.ne A.na.ly.sis"... "Hmm... a foreigner, sounds like..." "A spy, looks like.... Let's shoot him on the spot!" Then reads further: "'Proteins: none, Sugars: none, Fats: none...' You are free to go, proletarian comrade! Long live the World revolution!"

arethuza7• 16 years ago

Richard Rhodes book "The Arsenals of Folly" covers the lead up to the fall of the Soviet Union from the perspective of the leaders negotiating to reduce levels of nuclear weapons. It also covers some of the fundamental economic problems the Soviets had:

http://www.amazon.com/Arsenals-Folly-Making-Nuclear-Vintage/...

petercooper• 16 years ago

Fixed prices and a layer of red tape that caused resources not to be managed efficiently.

forinti2• 16 years ago

I'm not advocating communism, but if you look at the Soviet Union as a process, it did manage to turn an agrarian society (feudal, actually) into an industrialized one in 70 years. It's quite a feat, even more so if you consider the destruction they suffered in WWII.

iwr4• 16 years ago

Compare that to the rapid developments of post-war Germany, Japan, South Korea, Singapore, then post-1990: Poland, Hungary, The Czech Republic etc. We have to look at opportunity costs, not just raw improvements.

brazzy• 16 years ago

None of those situations (which I have any knowledge about) are even remotely comparable to that of Russia at the time of revolution. Germany and Japan had been fully industrialized. Singapore basically grew by attracting capital as a tax haven.

Russia in 1917 was about as developed as Germany or Japan in 1850 - or Britain in 1750.

The funny thing is that this fact means the revolution totally contradicted Marxist doctrine, which predicts communism as a natural remedy to the excesses of capitalism. Russia hadn't even entered the captitalist "phase" yet - it was literally the least appropriate country in Europe to stage a communist revolution in.

Symmetry3• 16 years ago

Two responses to that.

First, I'm not quite sure you appreciate the cost of that industrialization. The USSR achieved fast extensive growth in its early years by forcing a very high savings rate. What does that mean? They exported lots of grain to buy machinery. Where did the grain come from? The peasants. What did the peasants do after their grain was taken? They starved. The general attitude during this time (which helped the Party consolidate power) was not so much of withholding food from dissidents, but rather withholding food from anyone who couldn't make a convincing case for how they were benefiting the party or the state. So most of the progress in bring up the USSR industrial capacity per person was due to increasing industrial capacity, but a notable part of it was due to decreasing the number of people as well.

Second, forced savings is a good strategy for playing catchup industrially when there are lots of obvious ways you can invest the savings (called extensive growth). Its possible to mess this up (see the Great Leap Forward) but if the beaurocrats are competent its possible. But when you've urbanized and need to start specializing more to keep growing the economy finding efficient ways to do so becomes harder (you're in intensive growth). Its here that government directed industrial policies tend to fail (or at least work more slowly than less directed solutions) due to coordination problems.

rdtsc• 16 years ago

Also let's not forget labor camps. Some big industrial projects (especially in Siberia) such as dams, the Trans-Siberian railroad, factories, power lines etc., were built with slave labor.

I am not sure of the %, I imagine it is not terribly large, but it is still there.

Other projects were built with student labor. University students were encouraged to provide volunteer work on such projects. They got on a train and traveled some place wherever help was needed. My father said it was quite fun. He spent a summer in Khazakstan, then another in Siberia.

forinti2• 16 years ago

I'm not saying it was a pretty picture. It wasn't nice in other places either. In England children worked in mines for centuries.

Source: http://eh.net/encyclopedia/article/tuttle.labor.child.britai...

face14• 16 years ago

Are these reports from first hand experience or can you site your sources?

In particular, I'm curious how you'll back up the "but a notable part of it was due to decreasing the number of people as well," considering USSR's population grew during the period you are describing [1].

1. http://en.wikipedia.org/wiki/Demographics_of_the_Soviet_Unio...

JabavuAdams4• 16 years ago

Who got the benefits and who paid the price?

Impressively, Nazi Germany was able to invent and field ballistic missiles, and to launch them at a rate never seen since, all while under constant bombardment.

Just don't ask where they got their factory workers.

ramanujan4• 16 years ago

The Soviet Union was quite literally built on slave labor (http://gulaghistory.org/nps/onlineexhibit/stalin/work.php). Arguably, the Gulag system of slavery was even more brutal than that of the American South. And like the South, they ultimately fell behind technologically and industrially to a free society.

What is forgotten today is that there were men who contemporaneously made the connection between communism and slavery while advocating for it, including George Fitzhugh:

http://en.m.wikipedia.org/wiki/George_Fitzhugh

Sociology for the South, or, the Failure of Free Society (1855) was George Fitzhugh's most powerful attack on the philosophical foundations of free society. In it, he took on not only Adam Smith, the foundational thinker of capitalism, but also John Locke, Thomas Jefferson, and the entire liberal tradition. He argued that free labor and free markets enriched the strong while crushing the weak. What society needed, he wrote, was slavery, not just for blacks, but for whites as well. "Slavery," he wrote, "is a form, and the very best form, of socialism."

face14• 16 years ago

This sort of propaganda bullshit is popular in the US. That's like saying the US was built on slave and prison labor.

Sure, they contributed, but, at what scale?

hippich• 16 years ago

and killed millions of people and planted fear feelings in every man in these countries. I hate it. (i am from there).

elblanco3• 16 years ago

A fun bit of history I learned from a retired Soviet Analyst...My analyst friend learned of this years later from his Russian counterpart, after finally being allowed to visit the country he had studied for so long so I'm guessing it's pretty accurate.

Sometime in the 80's, the Soviets brought in some Japanese industrial consultants as part of a modernization push for Soviet factories -- they had started to become aware that the sophistication of their industrial capabilities had more or less stagnated somewhere in the 1940's or 50's. Feeling pressure from an increasingly sophisticated U.S. and Europe, they wanted to know what it would take to catch up with the Japanese, then widely considered to have the best, most sophisticated manufacturing processes in the world.

The consultants came and toured some of the major manufacturing cities and facilities, taking notes, interviewing workers and managers, testing final output and raw materials quality, crunching numbers, analyzing the supply chain, that sort of thing. Finally they met with the Soviet leadership in Sverdlovsk (now Yekaterinburg), home of some of the major industrial capacity of the Union.

After reviewing the findings for several hours, one of the Soviets, impatient with all the details finally spoke up, "yes yes yes...we know all this...what we want to know is, how long will it take, if we put all of our national resources behind it (meaning, a space race level effort), for us to catch up with the Japanese?"

Their reply?

"Forever"

Their analysis revealed that the systemic and social issues in the Soviet Union (as well as a combination of material resources and other odds and ends) were so bad, that no matter how much effort the Soviets put into upgrading their manufacturing processes, and no matter how long they put that effort forward, the Japanese would always be ahead.

The consultants were quickly rushed out of the country and the study was never spoken of again.

Within the decade, the Union had fallen and it was all a moot point anyway.

chopsueyar• 16 years ago

That reminds me of the book written by W. Edwards Deming, Out of the Crisis, where he is consulting with a US auto manufacturer, and the manufacturer asks a similar question, "When will we catch up with Japan?" (paraphrased).

Because of Japanese continuous improvement, or Kaizen, it is difficult, if not impossible to do.

As long as one is constantly improving, the others cannot catch up.

http://en.wikipedia.org/wiki/W._Edwards_Deming

jasonwatkinspdx• 16 years ago

Interesting that both these anecdotes mirror the insight behind the OODA loop: that the tempo of decision/adaptation is key.

I believe this basic insight applies whenever your actions now influence your rate of gain in the future.

elblanco3• 16 years ago

> Because of Japanese continuous improvement, or Kaizen, it is difficult, if not impossible to do.

Oh great point! Yeah, the problem I think in most of these type of large systems migration choices is that they view only two discrete states, the present state and the target state -- and then try and build and plan for all contingencies. Some of the smarter ones try and define the target state primed to become the next present state with an eye towards a new target state, but in practice I don't think this style of thinking works very well.

In the Soviet example, they were looking at the present state of Japanese manufacturing capability and shooting for that as a target, while the Japanese were improving it every minute of every day. There is no goal in Kaizen, all that matters is the process of improvement. It's a very Zen way of looking at the world that I think thankfully is finding it's way into more modern principles of iterative development (it's amazing how ever-present Kaizen is in Western management training -- but I never got the impression that any of the texts really "got it", instead it's lots of discussion of studying it and trying to figure out how to adapt these two state processes to Kaizen principles without ever understanding the continuous nature of it).

thesz• 16 years ago

>As long as one is constantly improving, the others cannot catch up.

http://en.wikipedia.org/wiki/Zeno%27s_paradoxes#Achilles_and...

ThomPete5• 16 years ago

There is a theory (can't remember where I head or read it) that one of the main reasons the soviet union fell apart was that the number of phones installed in private homes increased to a point where it was impossible for the KGB to monitor and therefore to suppress with propaganda.

I have tried to see if I could find any numbers on phone installations up to the fall but haven't found any.

Also according to one of the main KGB execs the SDI program was when they realized that they weren't able to compete with the US anymore.

Ironically the SDI project besides from it being impossible to implement, had it been fully implemented, it would have cribbled the US economy too.

There is also a nice quite from Arthur C. Clarke about the SDI project in which he observed that any system as powerful as the vision of the SDI project would be more dangerous in itself than the dangers it was supposed to protect against.

huhtenberg2• 16 years ago

This theory is patently absurd. Moscow alone was about 10-12 million people in 80s, virtually all residing in apartment buildings with each apartment having a phone line. Do consider how many man-hours it would've taken the KGB to monitor phone conversations in this city alone. Absurd theory.

ThomPete5• 16 years ago

The question is how many they had in the 70s.

abalashov3• 16 years ago

I don't know Americans are so deeply fond of gross oversimplifications and naive, childlike formulations like this.

ThomPete5• 16 years ago

I don't know why (non?) Americans are so deeply fond of gross oversimplified interpretations of what is written like this.

johngalt2• 16 years ago

1. Socialism 2. Totalitarianism

face14• 16 years ago

Totalitarian societies have existed for thousands of years in Europe. Socialism seems to be pretty popular in the US (Medicare, SS) and seems to be working out okay in EU.

johngalt2• 16 years ago

The article basically says that the Soviet economy was broken by bad bets on two commodities. Very hard to bet the whole country if you don't have a command economy.

protomyth5• 16 years ago

One of the lessons of the USSR, your leader saying something is so and shooting / exiling everyone who says different does not make for a prosperous, sustainable government.

natnat• 16 years ago

Counterpoint: China

While China today isn't nearly as bad as the USSR was, their authoritarian government that still jails and executes political opponents hasn't stopped their political stability and economic success.

protomyth5• 16 years ago

It was the ignore reality part that USSR did so wrong (with shooting/jailing being a result). China doesn't seem to have a problem with ignoring reality.

face14• 16 years ago

Amazing that the propaganda campaign has been so successful that people make idiotic statements like that.

protomyth5• 16 years ago

So, what was the actual death toll from purges in the USSR?

listic• 16 years ago

Yegor Gaidar's book is on Amazon:

"Collapse of an Empire: Lessons for Modern Russia" http://www.amazon.com/Collapse-Empire-Lessons-Modern-Russia/...

The description and reviews are very comprehensive.

The 2 Simple Reasons the Soviet Union Was Doomed to Fail

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