Economy of the Soviet Union

economy of the Soviet Union was based on a system of state ownership, administrative planning, socialist competition and free labour. The Soviet Union created the modern world's first centrally planned economy. The first major project of economic planning was the GOELRO plan, which was introduced in 1920 and basically fulfilled by 1931. It included construction of a network of 30 regional power plants, including ten large hydroelectric power plants, and numerous electric-powered large industrial enterprises. The GOELRO Plan became the prototype for subsequent Soviet five-year plans.

From 1928 to 1991 the entire course of the economy was guided by a series of Five-Year Plans. Within about 50 years, the nation evolved from a mainly agrarian society and became one of the world's three top manufacturers of a large number of capital goods, heavy industrial products and weaponry. However, the USSR lagged far behind in the output of light industrial production and consumer durables, mostly because of inability of Gosplan to predict the demand for such products. Since the dissolution of the Soviet Union in 1991, all 15 former Soviet republics have dismantled their Soviet-style economies (see Transition from economic planning in the former Soviet Union).

Planning

Based on a system of state ownership, the Soviet economy was managed through Gosplan (the State Planning Commission), Gosbank (the State Bank) and the Gossnab (State Commission for Materials and Equipment Supply). Beginning in 1928, the economy was directed by a series of five-year plans, with a brief attempt at seven-year planning. For every enterprise, planning ministries (also known as the "fund holders" or fondoderzhateli) defined the mix of economic inputs (e.g., labor and raw materials), a schedule for completion, all wholesale prices and almost all retail prices.

Industry was long concentrated after 1928 on the production of capital goods through metallurgy, machine manufacture, and chemical industry. In Soviet terminology, the capital goods were known as group A goods, or means of production. This emphasis was based on the perceived necessity for a very fast industrialization and modernization of the Soviet Union. After the death of Stalin in 1953, consumer goods (group B goods) received more emphasis. For further details see consumer goods in the Soviet Union.

Most information in the Soviet economy flowed from the top down. There were several mechanisms in place for producers and consumers to provide input and information that would help in the drafting of economic plans (as detailed below), but the political climate was such that few people ever provided negative input or criticism of the plan. Thus, Soviet planners had very little reliable feedback which they could use to determine the success of their plans. This meant that economic planning was often done based on faulty or outdated information, particularly in sectors with large numbers of consumers.

As a result of the above, some goods tended to be underproduced, leading to shortages (defitsit, дефицит), while other goods were overproduced and accumulated in storage. Low-level managers often did not report such problems to their superiors, relying instead on each other for support. Some factories developed a system of barter and either exchanged or shared raw materials and parts without the knowledge of the authorities and outside the parameters of the economic plan.

Heavy industry was always the focus of the Soviet economy, even in its later years. The fact that it received special attention from the planners, combined with the fact that industrial production was relatively easy to plan even without minute feedback, led to significant growth in that sector. The Soviet Union became one of the leading industrial nations of the world. Industrial production was disproportionately high in the Soviet Union compared to Western economies. However, the production of consumer goods was disproportionately low. Economic planners made little effort to determine the wishes of household consumers, resulting in severe shortages of many consumer goods. Whenever these consumer goods would become available on the market, consumers routinely had to stand in long lines (queues) to buy them. A black market developed for goods that were particularly sought after but constantly underproduced (such as cigarettes).

Drafting the five-year plans

Under Stalin's tutelage, a complex system of planning arrangements had developed since the introduction of the first five-year plan in 1928. Until the late-1980s and early-1990s, when economic reforms backed by Soviet leader Mikhail Gorbachev introduced significant changes in the traditional system (see Perestroika), the allocation of resources was directed by a planning apparatus rather than through the interplay of market forces.

Time frame

From the Stalin era through the late 1980s, the five-year plan integrated short-range planning into a longer time frame. It delineated the chief thrust of the country's economic development and specified the way the economy could meet the desired goals of the Communist Party. Although the five-year plan was enacted into law, it contained a series of guidelines rather than a set of direct orders.

Periods covered by the five-year plans coincided with those covered by the gatherings of the CPSU Party Congress. At each CPSU Congress, the party leadership presented the targets for the next five-year plan. Thus, each plan had the approval of the most authoritative body of the country's leading political institution.

Guidelines for the plan

The Central Committee of the CPSU and, more specifically, its Politburo, set basic guidelines for planning. The Politburo determined the general direction of the economy via control figures (preliminary plan targets), major investment projects (capacity creation), and general economic policies. These guidelines were submitted as a report of the Central Committee to the Congress of the CPSU to be approved there.

After the approval at the congress, the list of priorities for the five-year plan was processed by the Council of Ministers, which constituted the government of the USSR. The Council of Ministers was composed of industrial ministers, chairmen of various state committees, and chairmen of agencies with ministerial status. This committee stood at the apex of the vast economic administration, including the state planning apparatus, the industrial ministries, the trusts (the intermediate level between the ministries and the enterprises), and finally, the state enterprises. The Council of Ministers elaborated on Politburo plan targets and sent them to Gosplan, which gathered data on plan fulfillment.

Gosplan

Main article: Gosplan

Combining the broad goals laid out by the Council of Ministers with data supplied by lower administrative levels regarding the current state of the economy, Gosplan worked out, through trial and error, a set of preliminary plan targets. Among more than twenty state committees, Gosplan headed the government's planning apparatus and was by far the most important agency in the economic administration. The task of planners was to balance resources and requirements to ensure that the necessary inputs were provided for the planned output. The planning apparatus alone was a vast organizational arrangement consisting of councils, commissions, governmental officials, specialists, etc. charged with executing and monitoring economic policy.

The state planning agency was subdivided into its own industrial departments, such as coal, iron, and machine building. It also had summary departments such as finance, dealing with issues that crossed functional boundaries. With the exception of a brief experiment with regional planning during the Khrushchev era in the 1950s, Soviet planning was done on a sectoral basis rather than on a regional basis. The departments of the state planning agency aided the agency's development of a full set of plan targets along with input requirements, a process involving bargaining between the ministries and their superiors.

Planning ministries

Economic ministries performed key roles in the Soviet organizational structure. When the planning goals had been established by Gosplan, economic ministries drafted plans within their jurisdictions and disseminated planning data to the subordinate enterprises.

The planning data were sent downward through the planning hierarchy for progressively more detailed elaboration. The ministry received its control targets, which were then disaggregated by branches within the ministry, then by lower units, eventually until each enterprise received its own control figures (production targets).

Enterprises

Enterprises were called upon to develop in the final period of state planning in the late-1980s and early-1990s (even though such participation was mostly limited to a rubber-stamping of prepared statements during huge pre-staged meetings).

The enterprises' draft plans were then sent back up through the planning ministries for review. This process entailed intensive bargaining, with all parties seeking the target levels and input figures that best suited their interests.

Redrafting the plan

After this bargaining process, Gosplan received the revised estimates and re-aggregated them as it saw fit. Then, the redrafted plan was sent to the Council of Ministers and the Party's Politburo and Central Committee Secretariat for approval. The Council of Ministers submitted the Plan to the Supreme Soviet and the Central Committee submitted the plan to the Party Congress, both for rubber stamp approval. By this time, the process had been completed and the plan became law.

Approval of the plan

The review, revision, and approval of the five-year plan were followed by another downward flow of information, this time with the amended and final plans containing the specific targets for each sector of the economy. Implementation began at this point, and was largely the responsibility of enterprise managers.

Industrial Revolution

The Industrial Revolution was a period in the late 18th and early 19th centuries when major changes in agriculture, manufacturing, production, and transportation had a profound effect on the socioeconomic and cultural conditions in Britain. The changes subsequently spread throughout Europe, North America, and eventually the world. The onset of the Industrial Revolution marked a major turning point in human society; almost every aspect of daily life was eventually influenced in some way.

In the later part of the 1700s there occurred a transition in parts of Great Britain's previously manual-labour-based economy towards machine-based manufacturing. It started with the mechanisation of the textile industries, the development of iron-making techniques and the increased use of refined coal. Trade expansion was enabled by the introduction of canals, improved roads and railways. The introduction of steam power fuelled primarily by coal, wider utilization of water wheels and powered machinery (mainly in textile manufacturing) underpinned the dramatic increases in production capacity.^[2] The development of all-metal machine tools in the first two decades of the 19th century facilitated the manufacture of more production machines for manufacturing in other industries. The effects spread throughout Western Europe and North America during the 19th century, eventually affecting most of the world. The impact of this change on society was enormous.^[3]

The First Industrial Revolution, which began in the 18th century, merged into the Second Industrial Revolution around 1850, when technological and economic progress gained momentum with the development of steam-powered ships, railways, and later in the 19th century with the internal combustion engine and electrical power generation.

The period of time covered by the Industrial Revolution varies with different historians. Eric Hobsbawm held that it 'broke out' in the 1780s and was not fully felt until the 1830s or 1840s,^[4] while T. S. Ashton held that it occurred roughly between 1760 and 1830.^[5] Some twentieth century historians such as John Clapham and Nicholas Crafts have argued that the process of economic and social change took place gradually and the term revolution is not a true description of what took place. This is still a subject of debate amongst historians.^[6][7]

GDP per capita was broadly stable before the Industrial Revolution and the emergence of the modern capitalist economy.^[8] The Industrial Revolution began an era of per-capita economic growth in capitalist economies.^[9] Historians agree that the Industrial Revolution was one of the most important events in history.^[10] The most significant inventions had their origins in the Western world, primarily Europe and the United States.^[11]

American System of Watch Manufacturing

In the mid 19th century Aaron Lufkin Dennison became inspired by the manufacturing techniques of the United States Armory at Springfield, Mass. The "armory practice" was mainly based on a strict system of organization, the extensive use of the machine shop and a control system based on gauges. Aaron Dennison proposed to produce watches via these techniques and, along with a few others, founded the Waltham Watch Company.

In the rest of the world manufacturing involved making certain parts under the roof of a factory and obtaining other parts from piece workers who used their own cottages as workshops.

The American System of manufacturing by interchangeable parts meant the establishment of working facilities for the entire manufacture. It meant that everything was made on the premises, not according to the plans or ideas or methods of work of individual workmen, but under the direct supervision of a company's foreman, according to gauges the company furnished, under conditions of time, cleanliness and care which the company prescribed.

Waltham soon found that it was necessary to invent, develop and build its own production machinery, special gauges systems adjusted to the smallest watch parts dimensions, new alloys & materials.

The chronology of production lessons at the Waltham Watch Company can be divided into three phases:

• 1849-1857 learning and experimenting
• 1858-1870 refining and gauging
• 1871-1910 automating and factory organization

The manufacturing of watches differed from other products that had earlier used the armory practices in two significant ways.

First, the high price of watches allowed for a large investment in research and development. The vast majority of the price of a watch was due to labor rather than materials and any system that could significantly reduce labor costs could significantly increase profits. Even after 40 years of manufacturing improvements, in 1910, labor accounted for 80% of the cost of watches made by the Elgin National Watch Company.

Secondly, watches require very strict tolerances and very few manufacturing defects. Previous products made via armory practices, such as fire arms, sewing machines, etc. had tolerances 10 to 100 times as loose. A watch gear that is offset by a few thousands of an inch from where it should be will cause increased friction, losing critical power that needed to be sent to the balance wheel and greatly accelerating the wear of the watch. Previous watch manufacturing techniques required expert watchmakers to recognize slight variations in part sizes in order to place each gear in the correct location or to make other adjustments during the manufacturing of each watch.

In order to reach these strict tolerances, watch manufactures largely manufactured their own machine tools and machine parts. Elgin manufactured almost two drill bits for each watch they manufactured. The knowledge of how to manufacture machines that could manufacture watches spread from Waltham to Elgin to dozens of other American watch companies and manufactures of other products. Techniques such as jigs, stops and measuring devices on machines were not just refined, but other techniques were developed also. For example, statistical methods were used to maximums the usable parts. If a gear staff (axel) and a jewel bearing hole were designed to be a given size, then the parts that most closely met those design goals were used in the highest grade watches, while staffs that were two large would be matched to watch jewels with holes that were too large and together they could be used on lower grade watches.

History

In the late 18th century, French General Jean Baptiste Vaquette de Gribeauval suggested that muskets could be manufactured faster and more economically if they were made from interchangeable parts. This system would also make field repairs easier to carry out under battle conditions. He provided patronage to Honoré Blanc, who attempted to implement the Système Gribeauval, but never succeeded.^[1] Until then, under the English System of Manufacturing, skilled machinists were required to produce parts from a design. But however skilled the machinist, parts were never identical, and each part had to be manufactured separately to fit its counterpart—almost always by one person who produced each completed item from start to finish.

The Lowell system is also related to the American system during this time.

Gribeauval's idea was conveyed to the United States by two routes. First, Blanc's friend Thomas Jefferson championed it, sending copies of Blanc's memoirs and papers describing his work to Secretary of War Henry Knox. Second, an artillery officer named Louis de Tousard who served with Lafayette was an enthusiast of Gribeauval's ideas. Tousard wrote two influential documents after the American Revolution; one was used as the blueprint for West Point, and the other became the officer's training manual.^[1]

The War Department, which included officers trained at West Point on Tousard's manual, established the armories at Springfield and Harper's Ferry and tasked them with solving the problem of interchangeability. The task was finally accomplished in the 1820s. Historian David A. Hounshell believes that this was done by Captain John H. Hall, an inside contractor at Harper's Ferry.^[1] But historian Diana Muir argues that it is more probable that it was Simeon North, a Connecticut arms contractor manufacturing guns for the U. S. Army. North, not Hall, was the inventor of the crucial milling machine, and had an advantage over Hall in that he worked closely with the first industry that mass-produced complex machines from mass-produced interchangeable parts, the Connecticut clock-making industry.^[2]

Eli Whitney is generally credited with the idea and the practical application, but both are incorrect attributions. Based on his reputation as the inventor of the cotton gin, the U.S. government gave him a contract in 1798 for 10,000 muskets to be produced within two years. It actually took eight years to deliver the order, as Whitney perfected and developed new techniques and machines, but he did go on to produce a further 15,000 muskets within the following two years. Whitney never actually expressed any interest in interchangeability until 1800, when he was exposed to the memoirs of Blanc by Treasury Secretary Wolcott,^[1] but he spent far more time and energy promoting the idea than developing it.

The idea migrated from the armories to industry as machinists trained in the armory system were hired by other manufacturers. Manufacturers thus influenced included American clockmakers, the Singer Corporation sewing machine manufacturer, and McCormick Harvesting Machine Company.^[1]

Manufacturing

Manufacturing is the use of machines, tools and labor to make things for use or sale. The term may refer to a range of human activity, from handicraft to high tech, but is most commonly applied to industrial production, in which raw materials are transformed into finished goods on a large scale. Such finished goods may be used for manufacturing other, more complex products, such as household appliances or automobiles, or sold to wholesalers, who in turn sell them to retailers, who then sell them to end users - the "consumers".

Manufacturing takes place under all types of economic systems. In a free market economy, manufacturing is usually directed toward the mass production of products for sale to consumers at a profit. In a collectivist economy, manufacturing is more frequently directed by the state to supply a centrally planned economy. In free market economies, manufacturing occurs under some degree of government regulation.

Modern manufacturing includes all intermediate processes required for the production and integration of a product's components. Some industries, such as semiconductor and steel manufacturers use the term fabrication instead.

The manufacturing sector is closely connected with engineering and industrial design. Examples of major manufacturers in the United States include General Motors Corporation, Ford Motor Company, Chrysler, Boeing, Gates Rubber Company and Pfizer. Examples in Europe include Airbus, Daimler, BMW, Fiat, and Michelin Tyre.