Do Publicly Owned, Planned Economies Work?

As humanity struggles to survive and transcend capitalism, this question becomes more and more pertinent.

The Cruiser Aurora (now a museum in St. Petersburg), said to have fired a crucial shot during the October Revolution.

By Stephen Gowans, What’s Left

The Soviet Union was a concrete example of what a publicly owned, planned economy could produce: full employment, guaranteed pensions, paid maternity leave, limits on working hours, free healthcare and education (including higher education), subsidized vacations, inexpensive housing, low-cost childcare, subsidized public transportation, and rough income equality. Most of us want these benefits. However, are they achievable permanently? It is widely believed that while the Soviet Union may have produced these benefits, in the end, Soviet public ownership and planning proved to be unworkable. Otherwise, how to account for the country’s demise? Yet, when the Soviet economy was publicly owned and planned, from 1928 to 1989, it reliably expanded from year to year, except during the war years. To be clear, while capitalist economies plunged into a major depression and reliably lapsed into recessions every few years, the Soviet economy just as unfailingly did not, expanding unremittingly and always providing jobs for all.

Far from being unworkable, the Soviet Union’s publicly owned and planned economy succeeded remarkably well. What was unworkable was capitalism, with its occasional depressions, regular recessions, mass unemployment, and extremes of wealth and poverty, all the more evident today as capitalist economies contract or limp along, condemning numberless people to forced idleness. What eventually led to the Soviet Union’s demise was the accumulated toll on the Soviet economy of the West’s efforts to bring it down, the Reagan administration’s intensification of the Cold War, and the Soviet leadership’s inability to find a way out of the predicament these developments occasioned.

By the 1980s, the USSR was showing the strains of the Cold War. Its economy was growing, but at slower pace than it had in the past. Military competition with its ideological competitor, the United States, had slowed growth in multiple ways. First, R&D resources were being monopolized by the military, starving the civilian economy of the best scientists, engineers, and machine tools. Second, military spending had increased to meet the Reagan administration’s abandonment of detente in favour of a renewed arms race that was explicitly targeted at crippling the Soviet economy. To deter US aggression, the Soviets spent a punishingly large percentage of GDP on the military while the Americans, with a larger economy, spent more in absolute terms but at a lower and more manageable share of national income. Third, to protect itself from the dangers of relying on foreign imports of important raw materials that could be cut off to bring the country to its knees, the Soviet Union chose to extract raw materials from its own vast territory. While making the USSR self-sufficient, internal sourcing ensnared the country in a Ricardian trap. The costs of producing raw materials increased, as new and more difficult-to-reach sources needed to be tapped as the older, easy-to-reach ones were exhausted. Fourth, in order to better defend the country, the Soviets sought allies in Eastern Europe and the Third World. However, because the USSR was richer than the countries and movements it allied with, it became the anchor and banker to other socialist countries, liberation movements, and states seeking to free themselves from despoliation by Western powers. As the number of its allies increased, and Washington manoeuvred to arm, finance, and support anti-communist insurgencies in an attempt to put added strain on the Soviet treasury, the costs to Moscow of supporting its allies mounted. These factors—corollaries of the need to provide for the Soviet Union’s defence—combined to push costs to the point where they seriously impeded Soviet economic growth.

With growth slowing, and the costs of defending the country increasing, it appeared as if it was only a matter of time before the USSR would find itself between the Scylla of an untenable military position and the Charybdis of arms race-driven bankruptcy. Mikhail Gorbachev, the country’s last leader, faced a dilemma: he could either bankrupt the economy by trying to keep pace with the Americans on arms spending or withdraw from the race altogether. Gorbachev chose the latter. He moved to end the Cold War, withdrawing military support from allies, and pledging cooperation with the United States. On the economic front, he set out to transform the Soviet Union into a Western-style social democracy. However, rather than rescuing the country from a future of ever slowing economic growth, Gorbachev’s capitulations on foreign and economic policy led to disaster. With the restraining hand of the Soviet Union lifted, the United States embarked on a series of aggressions around the world, beginning with Iraq, proceeding to Yugoslavia, Afghanistan, Iraq again, and then Libya, with numerous smaller interventions in between. Gorbachev’s abandonment of economic planning and efforts to clear the way for the implementation of a market economy pushed the country into crisis. Within five years, Russia was an economic basket case. Unemployment, homelessness, economic insecurity and social parasitism (living off the labour of others) returned with a vengeance.

On Christmas Day, 1991, the day the USSR officially ended, Gorbachev said, “We live in a new world. The Cold War is finished. The arms race and the mad militarization of states, which deformed our economy, society and values, have been stopped. The threat of world war has been lifted” (Roberts, 1999). This made Gorbachev wildly popular in the West. Russians were less enthusiastic. Contained within Gorbachev’s words was the truth about why the world’s first conscious attempt to build an alternative to capitalism had been brought to a close. It was not because the Soviet economic system had proved unworkable. On the contrary, it had worked better than capitalism. The real reason for the USSR’s demise was that its leadership capitulated to an American foe, which, from the end of World War II, and with growing vigour during the Reagan years, sought to arms race to death the Soviet economy. This was an economy that worked for the bottom 99 percent, and therefore, if allowed to thrive, would have discredited the privately owned, market-regulated economies that the top one percent favoured and benefited from. It was this model of free enterprise and market regulation which made vast wealth, security and comfort the prerogatives of captains of industry and titans of finance, and unemployment, poverty, hunger, economic insecurity, and indignity—the necessary conditions of the top one percent’s riches—the lot of everyone else.

The 21 years since the defeat of the USSR have not been kind. Stalin, under whose tutelage the world’s first publicly owned, planned economy was built, once issued a prophetic warning: “What would happen if capitalism succeeded in smashing the Republic of Soviets? There would set in an era of the blackest reaction in all the capitalist and colonial countries. The working class and the oppressed peoples would be seized by the throat, the positions of international communism would be lost” (Stalin, 1954). And just as Stalin had accurately prophesied 10 years before Operation Barbarossa, the Nazi invasion of the USSR, that his country had only 10 years to prepare for an attack, so too did he accurately foresee the consequences of the Soviet Union’s falling to the forces of capitalism. An era of the blackest reaction has, indeed, set in. Washington now has more latitude to use its muscular military to pursue its reactionary agenda around the world. Public ownership and planning hang on in Cuba and North Korea, but the United States and its allies use sanctions, diplomatic isolation and military harassment to sabotage the economies of the hold-outs (as they did the Soviet economy), so that the consequences can be falsely hung on what are alleged to be the deficiencies of public ownership and planning. They are in reality the consequences of a methodical program of low-level warfare. Encouraged to believe that the Soviet economic system had failed, many people, including both communist supporters and detractors of the Soviet Union, concluded that a system of public ownership and planning is inherently flawed. Communists abandoned communist parties for social democratic ones, or abandoned radical politics altogether. Social democrats shifted right, eschewing reform, and embracing neo-liberalism. In addition, Western governments, no longer needing to blunt the appeal of public ownership and planning, abandoned the public policy goal of full employment and declared robust public services to be no longer affordable (Kotz, 2001). At the same time, privatization in the former Soviet Union and formerly communist countries of Eastern Europe expanded the global supply of wage-labour, with predictable consequences for wage levels worldwide. The Soviet Union’s defeat has ushered in a heyday for capital. For the rest of us, our throats, as Stalin warned, have been seized.

The world’s largest capitalist economies have been in crisis since 2008. Some are trapped in an austerity death-spiral, some in the grips of recession, most growing slowly at best. Austerity—in reality the gutting of public services—is the prescribed pseudo-remedy. There is no end in sight. In some parts of Europe, official unemployment reaches well into the double-digits, youth unemployment higher still. In Greece, a country of 11 million, there are only 3.7 million employed (Walker and Kakaounaki, 2012). Moreover, the crisis can in no way be traced to an outside power systematically working to bring about capitalism’s demise, as the United States and its allies systematically worked to bring about the end of public ownership and planning in the USSR. Yet, free to develop without the encumbrance of an organized effort to sabotage it, capitalism is not working. Few point this out. By contrast, the Soviet model of public ownership and planning—which, from its inception was the target of a concerted effort to undermine it—never once, except during the extraordinary years of World War II, stumbled into recession, nor failed to provide full employment. Yet it is understood, including by some former supporters of the Soviet Union, to have been unworkable. Contrary to a widely held misconception, the experience of the Soviet Union did not demonstrate that an inherent weakness existed within its publicly owned, planned economy that doomed it to failure. It demonstrated, instead, the very opposite—that public ownership and planning could do what capitalism could not do: produce unremitting economic growth, full employment, an extensive array of free and nearly free public services, and a fairly egalitarian distribution of income. Moreover, it could do so year after year and continued to do so until the Soviet leadership pulled the plug. It also demonstrated that the top one percent would defend private ownership by using military, economic, and ideological means to crush a system that worked against them but worked splendidly for the bottom 99 percent (an effort that carries on today against Cuba and North Korea.)

The defeat of the Soviet Union has, indeed, ushered in a period of dark reaction. The way out remains, as ever, public ownership and planning—which the Soviet experience from 1928 to 1989 demonstrates works remarkably well—and struggle against those who would discredit, degrade or destroy it.

What Soviet public ownership and planning did for ordinary citizens of the USSR

The benefits of the Soviet economic system were found in the elimination of the ills of capitalism—an end to unemployment, inflation, depressions and recessions, and extremes of wealth and poverty; an end to exploitation, which is to say, the practice of living off the labour of others; and the provision of a wide array of free and virtually free public services.

Among the most important accomplishments of the Soviet economy was the abolition of unemployment. Not only did the Soviet Union provide jobs for all, work was considered a social obligation, of such importance that it was enshrined in the constitution. The 1936 constitution stipulated that “citizens of the USSR have the right to work, that is, are guaranteed the right to employment and payment for their work in accordance with quantity and quality.” On the other hand, making a living through means other than work was prohibited. Hence, deriving an income from rent, profits, speculation or the black market – social parasitism – was illegal (Szymanski, 1984). Finding a job was easy, because labour was typically in short supply. Consequently, employees had a high degree of bargaining power on the job, with obvious benefits in job security, and management paying close attention to employee satisfaction (Kotz, 2003).

Article 41 of the 1977 constitution capped the workweek at 41 hours. Workers on night shift worked seven hours but received full (eight-hour) shift pay. Workers employed at dangerous jobs (e.g., mining) or where sustained alertness was critical (e.g. physicians) worked six or seven-hour shifts, but received fulltime pay. Overtime work was prohibited except under special circumstances (Szymanski, 1984).

From the 1960s, employees received an average of one month of vacation (Keeran and Kenny, 2004; Szymanski, 1984) which could be taken at subsidized resorts (Kotz, 2003).

All Soviet citizens were provided a retirement income, men at the age of 60, and women at the age of 55 (Lerouge, 2010). The right to a pension (as well as disability benefits) was guaranteed by the Soviet constitution (Article 43, 1977), rather than being revocable and subject to the momentary whims of politicians, as is the case in capitalist countries.

Women were granted maternity leave from their jobs with full pay as early as 1936 and this, too, along with many other benefits, was guaranteed in the Soviet constitution (Article 122, 1936). At the same time, the 1936 constitution made provision for a wide network of maternity homes, nurseries and kindergartens, while the revised 1977 constitution obligated the state to help “the family by providing and developing a broad system of childcare…by paying grants on the birth of a child, by providing children’s allowances and benefits for large families” (Article 53). The Soviet Union was the first country to develop public childcare (Szymanski, 1984).

Women in the USSR were accorded equal rights with men in all spheres of economic, state, cultural, social and political life (Article 122, 1936), including the equal right with men to employment, rest and leisure, social insurance and education. Among its many firsts, the USSR was the first country to legalize abortions, which were available at no cost (Sherman, 1969). It was also the first country to bring women into top government positions. An intense campaign was undertaken in Soviet Central Asia to liberate women from the misogynist oppression of conservative Islam. This produced a radical transformation of the condition of women’s lives in these areas (Szymanski, 1984).

The right to housing was guaranteed under a 1977 constitutional provision (Article 44). Urban housing space, however, was cramped, about half of what it was per capita in Austria and West Germany. The reasons were inadequate building in Tsarist times, the massive destruction of housing during World War II, and Soviet emphasis on heavy industry. Prior to the October Revolution, inadequate urban housing was built for ordinary people. After the revolution, new housing was built, but the housing stock remained insufficient. Housing draws heavily on capital, which the government needed urgently for the construction of industry. In addition, Nazi invaders destroyed one-third to one-half of Soviet dwellings during the Second World War (Sherman, 1969).

City-dwellers typically lived in apartment buildings owned by the enterprise in which they worked or by the local government. Rents were dirt cheap by law, about two to three percent of the family budget, while utilities were four to five percent (Szymanski, 1984; Keeran and Kenny, 2004). This differed sharply with the United States, where rents consumed a significant share of the average family budget (Szymanski, 1984), and still do.

Food staples and other necessities were subsidized, while luxury items were sold well above their costs.

Public transportation was efficient, extensive, and practically free. Subway fare was about eight cents in the 1970s, unchanged from the 1930s (Szymanski, 1984). Nothing comparable has ever existed in capitalist countries. This is because efficient, affordable and extensive public transportation would severely limit the profit-making opportunities of automobile manufacturers, petroleum companies, and civil engineering firms. In order to safeguard their profits, these firms use their wealth, connections and influence to stymie development of extensive, efficient and inexpensive public alternatives to private transportation. Governments, which need to keep private industry happy so that it continues to provide jobs, are constrained to play along. The only way to alter this is to bring capital under public control, in order to use it to meet public policy goals set out in a consciously constructed plan.

The Soviet Union placed greater stress on healthcare than their capitalist competitors did. No other country had more physicians per capita or more hospital beds per capita than the USSR. In 1977, the Soviet Union had 35 doctors and 212 hospital beds per 10,000 compared to 18 doctors and 63 hospital beds in the United States (Szymanski, 1984). Most important, healthcare was free. That US citizens had to pay for their healthcare was considered extremely barbaric in the Soviet Union, and Soviet citizens “often questioned US tourists quite incredulously on this point” (Sherman, 1969).

Education through university was also free, and stipends were available for post-secondary students, adequate to pay for textbooks, room and board, and other expenses (Sherman, 1969; Szymanski, 1984).

Income inequality in the Soviet Union was mild compared to capitalist countries. The difference between the highest income and the average wage was equivalent to the difference between the income of a physician in the United States and an average worker, about 8 to 10 times higher (Szymanski, 1984). The elite’s higher incomes afforded privileges no greater than being able to acquire a modest house and car (Kotz, 2000). By comparison, in 2010, Canada’s top-paid 100 CEOs received incomes 155 times higher than the average full-time wage. The average full-time wage was $43,000 (Canadian Centre for Policy Alternatives, 2011). An income 10 times larger would be $430,000—about what members of the capitalist elite make in a single week. A factor that mitigated the modest degree of Soviet income inequality was the access all Soviet citizens had to essential services at no, or virtually, no cost. Accordingly, the degree of material inequality was even smaller than the degree of income inequality (Szymanski, 1984).

Soviet leaders did not live in the opulent mansions that are the commonplace residences of presidents, prime ministers and monarchs in most of the world’s capitals (Parenti, 1997). Gorbachev, for example, lived in a four-family apartment building. Leningrad’s top construction official lived in a one-bedroom apartment, while the top political official in Minsk, his wife, daughter and son-in-law inhabited a two-bedroom apartment (Kotz and Weir, 1997). Critics of the Soviet Union accused the elite of being an exploiting ruling class, but the elite’s modest incomes and humble material circumstances raise serious doubt about this assessment. If it was indeed an exploiting ruling class, it was the oddest one in human history.

The Soviet economy’s record of growth under public ownership and planning

From the moment in 1928 that the Soviet economy became publicly owned and planned, to the point in 1989 that the economy was pushed in a free market direction, Soviet GDP per capita growth exceeded that of all other countries but Japan, South Korea and Taiwan. GDP per person grew by a factor of 5.2, compared to 4.0 for Western Europe and 3.3 for the Western European offshoots (the USA, Canada, Australia and New Zealand) (Allen, 2003). In other words, over the period in which its publicly owned, planned economy was in place, the USSR‘s record in raising incomes was better than that of the major industrialized capitalist countries. The Soviet Union’s robust growth over this period is all the more impressive considering that the period includes the war years when a major assault by Nazi Germany left a trail of utter destruction in its wake. The German invaders destroyed over 1,500 cities and towns, along with 70,000 villages, 31,000 factories, and nearly 100 million head of livestock (Leffler, 1994). Growth was highest to 1970, at which point expansion of the Soviet economy began to slow. However, even during this so-called (and misnamed) post-1970 period of stagnation, GDP per capita grew 27 percent (Allen, 2003).

While Soviet GDP per capita growth rates compare favorably with those of the major capitalist economies, a more relevant comparison is with the rest of the world. In 1928, the Soviet Union was still largely an agrarian country, and most people worked in agriculture, compared to a minority in Western Europe and North America. Hence, the economy of the USSR at the point of its transition to public ownership and planning was very different from that of the industrialized Western capitalist countries. On the other hand, the rest of the world resembled the Soviet Union in also being largely agrarian (Allen, 2003). It is therefore the rest of the world, not the United States and other advanced industrialized countries, with which the USSR should be compared. From 1928 to 1989, Soviet GDP per capita not only exceeded growth in the rich countries but exceeded growth in all other regions of the world combined, and to a greater degree. Hence, not only did the publicly owned, planned economy of the Soviet Union outpace the economies of richer capitalist economies, it grew even faster than the economies of countries that were most like the USSR in 1928. For example, outside its southern core, Latin America’s GDP per capita was $1,332 (1990 US dollars), almost equal to the USSR’s $1,370. By 1989, the Latin American figure had reached $4,886, but average income in the Soviet Union had climbed far higher, to $7,078 (Allen, 2003). Public ownership and planning had raised living standards to a higher level than capitalism had in Latin America, despite an equal starting point. Moreover, while the Soviet peacetime economy unfailingly expanded, the Latin American economy grew in fits and starts, with enterprises regularly shuttering their doors and laying off employees.

Perhaps the best illustration of how public ownership and planning performed better at raising living standards comes from a comparison of incomes in Soviet Central Asia with those of neighboring countries in the Middle East and South Asia. In 1928, these areas were in a pristinely pre-industrial state. Under public ownership and planning, incomes grew in Soviet Central Asia to $5,257 per annum by 1989, 32 percent higher than in neighboring capitalist Turkey, 44 percent higher than in neighboring capitalist Iran, and 241 percent higher than in neighboring capitalist Pakistan (Allen, 2003). For Central Asians, it was clear on which side of the Soviet Union’s border standards of living were highest.