9 ms·

The 2 Simple Reasons the Soviet Union Was Doomed to Fail

86 points by tvorryn 16y ago

iwr 16y 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. Read more: http://en.wikipedia.org/wiki/Economic_calculation_problem http://en.wikipedia.org/wiki/Economic_calculation_problem
- tvorryn 16y 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 http://en.wikipedia.org/wiki/Foundation_series
- arethuza 16y 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 16y ago
    Because they do, indeed, fail quite often. Examples abound in the last economic downturn.
  - cstross 16y 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.
    - iwr 16y ago
      The difference is that companies are voluntary associations of individuals. A government is a monopoly of force and justice; it can exert its authority even on those that have not explicitly (via a free contract) agreed to it.
      - cstross 16y ago
        Today that may be so; but prior to 1914 it was possible to move around anywhere in Europe (including the UK -- excluding the Russian Empire) without a passport or identity documents, and pretty much legal to settle anywhere. While the cost and difficulty of moving back then was greater than it is today, states had very porous borders and it was practical to vote with your feet (as in fact my grandparents did). The first world war put an end to the old order and made nationality non-discretionary -- and we're still dealing with the fallout today (as witness the permanent floating founder visas thread on HN).
        arethuza 16y ago
        I remember that from the start of Niall Ferguson's The War of the World - in 1913 the world looked quite a bit like it does today (at least from a "globalization" perspective).
      - JabavuAdams 16y ago
        Free contracts are a fiction. Everyone has obligations that tend to reduce their freedom. The ones who think they don't are called psychopaths. In personal development, an early stage is to understand that you can be independent. E.g. you can choose how to act and how to react to the outside world. A higher level of development is to realize that we're inter-dependent. No man is an island. There will always be constraints on our options. I don't like it, but I'm getting used to it. There is no absolute freedom, and there are no truly free contracts.
    - berntb 16y ago
      Creative destruction, as in the Austrian school, should be a major factor. Think evolution of organizations, economically inefficient ones die. People learn (in the Lamarckian way, too) what works best at the present time. Also... To quote an argument from your blog, there are many tens of millions of people needed to keep our civilization working efficiently (some specialized jobs might only have a few dozen practitioners, according to you). And to keep up with research and new methods, in every decade a large percentage of all those jobs will be totally different. Centrally planned system just can't touch that -- they can't even avoid traffic jams with a few million cars! (And those cars aren't [yet] genetically and culturally programmed to optimize their behavior individually and in groups.. and change a lot culturally every generation.) Own petard, etc. :-) Edit: A bit clearer, hopefully. Non-native language.
  - iwr 16y 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 16y 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 16y 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.
    - Daishiman 16y ago
      Unless the market conditions are such that workers cannot move from one place of employment to the other due to collusion between capitalists or if the economy is such that it's impossible to switch jobs. Let's be honest, job mobility even in market economies is a difficult affair for everyone but highly qualified professionals. The fact that IT workers can get a new job in a month is not indicative of the economy at large.
  - Symmetry 16y 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.
  - JabavuAdams 16y 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.
    - arethuza 16y ago
      Recent history suggests that this isn't true - the "too big to fail" banks.
  - gamble 16y 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.
- cstross 16y 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-francis-spufford http://www.guardian.co.uk/books/2010/aug/08/red-plenty-franc...
  - miked 16y 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.
    - JoachimSchipper 16y ago
      I know this is a popular point of view, but: [citation needed].
      - drats 16y ago
        Naked Economics[1] is a good basic introduction. Hayek's Road to Serfdom[2] is also a key text if you want a historically embedded one. An interesting point about it is that Orwell reviewed it, with qualified praise, shortly before writing 1984. Like 1984 it is wider in its scope (i.e. even if you had the bandwidth and the models, how do you stop the people running them from becoming corrupt?). Finally "From Marx to Mises: Post-capitalist society and the challenge of economic calculation"[3] has a very comprehensive review of many aspects of the debate. [1]http://www.amazon.com/Naked-Economics-Undressing-Science-Revised/dp/0393337642/ref=sr_1_1?ie=UTF8&qid=1290188339&sr=8-1 http://www.amazon.com/Naked-Economics-Undressing-Science-Rev... [2]http://www.amazon.com/Road-Serfdom-Documents---Definitive-Collected/dp/0226320553/ref=sr_1_1?s=books&ie=UTF8&qid=1290188592&sr=1-1 http://www.amazon.com/Road-Serfdom-Documents---Definitive-Co... [3]http://www.amazon.com/Marx-Mises-Capitalist-Challenge-Calculation/dp/0875484492/ref=sr_1_1?ie=UTF8&s=books&qid=1290188616&sr=1-1 http://www.amazon.com/Marx-Mises-Capitalist-Challenge-Calcul...
lionhearted 16y 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."
- iuguy 16y 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!"
arethuza 16y 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/dp/0375713948 http://www.amazon.com/Arsenals-Folly-Making-Nuclear-Vintage/...
petercooper 16y ago
Fixed prices and a layer of red tape that caused resources not to be managed efficiently.
forinti 16y 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.
- iwr 16y 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 16y 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.
    - Retric 16y ago
      IMO, the funny thing is the United states (1950 - 1980) is probably the closest example of the Marxist ideal you can find. After industrialization you had violent conflict between workers and factory owners that resulted in places like GM being gutted by their workers who kept the fruits of their labors. Arguably by the end of the cold war it was more a question of how you organize a communist country than would you create one. PS: Of course with automation and computing many of the old assumptions stopped applying but it’s hard to complain when someone only sees 75 - 100 and not 150 years into the future.
    - drats 16y ago
      While I see your point against those examples it's worth noting that Japan in the mid 19th century was a feudal society with hundreds of thousands of samurai, and by WWII they were fielding a massive navy with aircraft carriers capable of striking the USA. And the difference between the wealth of Americans at the beginning of the 20th century compared to the end is also larger in many ways. However, the difference between starving and a full belly is certainly something which people will pay more attention to rather than the difference between being well fed and then acquiring large houses, refrigeration, washing machines, one or two cars, mobile phones, radio, television, landing a couple of guys on the moon and getting them back, computers and the Internet. The scope of western capitalist development in the 20th century is simply staggering compared to any pissant planned economy, and it was done without the most horrific mass murders of the 20th century that we see under the communist regimes. Also, Lenin's modification of Marxist theory is somewhat irrelevant, the Marxist foundation was entirely wrong on a number of massive points: one more wasn't going to make a difference.
elblanco 16y 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 16y 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 http://en.wikipedia.org/wiki/W._Edwards_Deming
ThomPete 16y 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.
- huhtenberg 16y 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.
  - ThomPete 16y ago
    The question is how many they had in the 70s.
    - huhtenberg 16y ago
      How are 70s relevant? In any case you seem to be mistaking Soviet Union for Mongolia or some other equally well-developed country. Moscow stats - http://mgts.ru/company/about/foundation http://mgts.ru/company/about/foundation - 162K new lines in 1970, 89K - in '71, 130K - in '72, etc.
      - ThomPete 16y ago
        Relevant because the theory talks about an increase in phone lines. To talk about increase you will need to see the progression over time. The soviet union fell apart late 80s early 90s. What's up with the attitude?
johngalt 16y ago
1. Socialism 2. Totalitarianism
- face 16y 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.
  - johngalt 16y 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.
protomyth 16y 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 16y 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.
  - protomyth 16y 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.
    - face 16y ago
      The US jails far more people today than the USSR ever managed to. It seems to be working out okay for us.
      - anamax 16y ago
        > The US jails far more people today than the USSR ever managed to. It seems to be working out okay for us. Who you jail and the effect that said jailing has on other people also matters.
        face 16y ago
        So, it's fine to jail millions, as long as they're people who sell or smoke pot and not people who you consider important?
        anamax 16y ago
        I didn't say that either jailing system was good. I said that they had different properties. But, now that you've brought it up, do you think that they're equally bad? (Note - "both bad" doesn't imply "equal".)
listic 16y 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/dp/0815731140/ref=cm_cr_pr_product_top http://www.amazon.com/Collapse-Empire-Lessons-Modern-Russia/... The description and reviews are very comprehensive.

86 points by tvorryn 16y ago

iwr 16y 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. Read more: http://en.wikipedia.org/wiki/Economic_calculation_problem http://en.wikipedia.org/wiki/Economic_calculation_problem

tvorryn 16y 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 http://en.wikipedia.org/wiki/Foundation_series
arethuza 16y 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 16y ago
  Because they do, indeed, fail quite often. Examples abound in the last economic downturn.
- cstross 16y 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.
  - iwr 16y ago
    The difference is that companies are voluntary associations of individuals. A government is a monopoly of force and justice; it can exert its authority even on those that have not explicitly (via a free contract) agreed to it.
    - cstross 16y ago
      Today that may be so; but prior to 1914 it was possible to move around anywhere in Europe (including the UK -- excluding the Russian Empire) without a passport or identity documents, and pretty much legal to settle anywhere. While the cost and difficulty of moving back then was greater than it is today, states had very porous borders and it was practical to vote with your feet (as in fact my grandparents did). The first world war put an end to the old order and made nationality non-discretionary -- and we're still dealing with the fallout today (as witness the permanent floating founder visas thread on HN).
      - arethuza 16y ago
        I remember that from the start of Niall Ferguson's The War of the World - in 1913 the world looked quite a bit like it does today (at least from a "globalization" perspective).
    - JabavuAdams 16y ago
      Free contracts are a fiction. Everyone has obligations that tend to reduce their freedom. The ones who think they don't are called psychopaths. In personal development, an early stage is to understand that you can be independent. E.g. you can choose how to act and how to react to the outside world. A higher level of development is to realize that we're inter-dependent. No man is an island. There will always be constraints on our options. I don't like it, but I'm getting used to it. There is no absolute freedom, and there are no truly free contracts.
  - berntb 16y ago
    Creative destruction, as in the Austrian school, should be a major factor. Think evolution of organizations, economically inefficient ones die. People learn (in the Lamarckian way, too) what works best at the present time. Also... To quote an argument from your blog, there are many tens of millions of people needed to keep our civilization working efficiently (some specialized jobs might only have a few dozen practitioners, according to you). And to keep up with research and new methods, in every decade a large percentage of all those jobs will be totally different. Centrally planned system just can't touch that -- they can't even avoid traffic jams with a few million cars! (And those cars aren't [yet] genetically and culturally programmed to optimize their behavior individually and in groups.. and change a lot culturally every generation.) Own petard, etc. :-) Edit: A bit clearer, hopefully. Non-native language.
- iwr 16y 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 16y 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 16y 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.
  - Daishiman 16y ago
    Unless the market conditions are such that workers cannot move from one place of employment to the other due to collusion between capitalists or if the economy is such that it's impossible to switch jobs. Let's be honest, job mobility even in market economies is a difficult affair for everyone but highly qualified professionals. The fact that IT workers can get a new job in a month is not indicative of the economy at large.
- Symmetry 16y 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.
- JabavuAdams 16y 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.
  - arethuza 16y ago
    Recent history suggests that this isn't true - the "too big to fail" banks.
- gamble 16y 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.
cstross 16y 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-francis-spufford http://www.guardian.co.uk/books/2010/aug/08/red-plenty-franc...
- miked 16y 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.
  - JoachimSchipper 16y ago
    I know this is a popular point of view, but: [citation needed].
    - drats 16y ago
      Naked Economics[1] is a good basic introduction. Hayek's Road to Serfdom[2] is also a key text if you want a historically embedded one. An interesting point about it is that Orwell reviewed it, with qualified praise, shortly before writing 1984. Like 1984 it is wider in its scope (i.e. even if you had the bandwidth and the models, how do you stop the people running them from becoming corrupt?). Finally "From Marx to Mises: Post-capitalist society and the challenge of economic calculation"[3] has a very comprehensive review of many aspects of the debate. [1]http://www.amazon.com/Naked-Economics-Undressing-Science-Revised/dp/0393337642/ref=sr_1_1?ie=UTF8&qid=1290188339&sr=8-1 http://www.amazon.com/Naked-Economics-Undressing-Science-Rev... [2]http://www.amazon.com/Road-Serfdom-Documents---Definitive-Collected/dp/0226320553/ref=sr_1_1?s=books&ie=UTF8&qid=1290188592&sr=1-1 http://www.amazon.com/Road-Serfdom-Documents---Definitive-Co... [3]http://www.amazon.com/Marx-Mises-Capitalist-Challenge-Calculation/dp/0875484492/ref=sr_1_1?ie=UTF8&s=books&qid=1290188616&sr=1-1 http://www.amazon.com/Marx-Mises-Capitalist-Challenge-Calcul...

lionhearted 16y 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."

iuguy 16y 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!"

arethuza 16y 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/dp/0375713948 http://www.amazon.com/Arsenals-Folly-Making-Nuclear-Vintage/...

petercooper 16y ago

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

forinti 16y 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.

iwr 16y 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 16y 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.
  - Retric 16y ago
    IMO, the funny thing is the United states (1950 - 1980) is probably the closest example of the Marxist ideal you can find. After industrialization you had violent conflict between workers and factory owners that resulted in places like GM being gutted by their workers who kept the fruits of their labors. Arguably by the end of the cold war it was more a question of how you organize a communist country than would you create one. PS: Of course with automation and computing many of the old assumptions stopped applying but it’s hard to complain when someone only sees 75 - 100 and not 150 years into the future.
  - drats 16y ago
    While I see your point against those examples it's worth noting that Japan in the mid 19th century was a feudal society with hundreds of thousands of samurai, and by WWII they were fielding a massive navy with aircraft carriers capable of striking the USA. And the difference between the wealth of Americans at the beginning of the 20th century compared to the end is also larger in many ways. However, the difference between starving and a full belly is certainly something which people will pay more attention to rather than the difference between being well fed and then acquiring large houses, refrigeration, washing machines, one or two cars, mobile phones, radio, television, landing a couple of guys on the moon and getting them back, computers and the Internet. The scope of western capitalist development in the 20th century is simply staggering compared to any pissant planned economy, and it was done without the most horrific mass murders of the 20th century that we see under the communist regimes. Also, Lenin's modification of Marxist theory is somewhat irrelevant, the Marxist foundation was entirely wrong on a number of massive points: one more wasn't going to make a difference.

elblanco 16y 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 16y 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 http://en.wikipedia.org/wiki/W._Edwards_Deming

ThomPete 16y 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.

huhtenberg 16y 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.
- ThomPete 16y ago
  The question is how many they had in the 70s.
  - huhtenberg 16y ago
    How are 70s relevant? In any case you seem to be mistaking Soviet Union for Mongolia or some other equally well-developed country. Moscow stats - http://mgts.ru/company/about/foundation http://mgts.ru/company/about/foundation - 162K new lines in 1970, 89K - in '71, 130K - in '72, etc.
    - ThomPete 16y ago
      Relevant because the theory talks about an increase in phone lines. To talk about increase you will need to see the progression over time. The soviet union fell apart late 80s early 90s. What's up with the attitude?

johngalt 16y ago

1. Socialism 2. Totalitarianism

face 16y 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.
- johngalt 16y 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.

protomyth 16y 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 16y 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.
- protomyth 16y 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.
  - face 16y ago
    The US jails far more people today than the USSR ever managed to. It seems to be working out okay for us.
    - anamax 16y ago
      > The US jails far more people today than the USSR ever managed to. It seems to be working out okay for us. Who you jail and the effect that said jailing has on other people also matters.
      - face 16y ago
        So, it's fine to jail millions, as long as they're people who sell or smoke pot and not people who you consider important?
        anamax 16y ago
        I didn't say that either jailing system was good. I said that they had different properties. But, now that you've brought it up, do you think that they're equally bad? (Note - "both bad" doesn't imply "equal".)

listic 16y 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/dp/0815731140/ref=cm_cr_pr_product_top http://www.amazon.com/Collapse-Empire-Lessons-Modern-Russia/... The description and reviews are very comprehensive.