Czarist Russia I
A Peasant Leaving His Landlord on Yuriev Day, Sergei V. Ivanov, (1908)
Serfdom in Russia like European feudalism
- Serfs were bonded to land, sold only when land is sold to other landowners
Serfdom only abolished in 1861 by Emperor Alexander II
Czarist Russia II
Source: Acemoglu and Robinson (2012: 109).
Czarist Russia III
Czar Nicholas II
1868-1917
Russian Empire ruled by the Romanovs
A feudal, agrarian society
Nobody, not even Marx, expected socialism in Russia
- Marxian dialectic: must pass through capitalism first!
- No bourgeoisie or middle class!
Czarist Russia IV
Protestors facing soldiers at the Narva Gate, St. Petersburg
- Russian Revolution of 1905
- Lenin: "the great dress rehearsal" for 1917 revolution
- Uprising of peasants, worker strikes, military mutinies
- Czarist troops remain loyal, open fire on citizens
Czarist Russia V
Czar Nicholas II addresses the Duma
October Manifesto:
- Grant people "inviolable personal rights" including freedom of conscience, speech, and assembly
- Give people participation in the newly formed Duma
- Ensure no law would be passed without the consent of the Duma
Forced Russian Constitution of 1906
- Creation of the Imperial Duma (legislature)
- only convened 4 times in 20th century before the Revolution
Czarist Russia VI
Entry into WWI (1914-1918)
- indecisive, about 9-10 million Russian casualties (cf. 1-2 million for other countries)
Germans authorized Vladimir Lenin (in exile in Geneva) to return back to Russia to foment revolution
Czarist Russia VII
Humilating 1918 Treaty of Brest-Livotsk (concluded by Bolsheviks)
Russia exits WWI
Gives Baltic states to Germany, recognizes independent Ukraine
Abandons its alliances with France and Britain
The February Revolution, 1917
February Revolution in the capital (Petrograd/St. Petersberg)
- protests against food rationing (mostly women!)
- the army mutanies and sides with protestors
Czar Nicholas II abdicates the throne
Duma siezes control of the country, forms the Provisional Government
- dominated by landowners, aristocracy
- consolidated under Alexandr Kerensky
- lasts 8 months
The Provisional Government, 1917 I
The Provisional Government
Kadet party: Western-liberal intellectuals
- the original opposition to the Czar
- most members of Provisional Government
- became "the new conservatives" as the country moves to the left:
Socialist Revolutionary Party: rural countryside socialists
- supporters of the Provisional Government, focus on land reform
- overwhelmingly supported by masses (peasants)
Mensheviks: urban socialists
- supporters of the Provisional Government (a step towards Communism)
- a majority of socialists
- wanted larger scale, working class, democratic, more gradual "revolution"
The Provisional Government, 1917 II
Bolsheviks: radical socialists under Lenin
- violently opposed Provisional Government
- a minority of socialists
Lenin's idea of a vanguard of professional revolutionaries that must seize power to establish Marx's dictatorship of the proletariat
"Telescope through history" from feudalism past (nonexistant in Russia) bourgeois capitalist straight to socialism
The Provisional Government, 1917 III
Aleksandr Kerensky
Provisional government had de jure control over Russia
- Declared a Republic (no longer Empire)
- Granted independence to Poland, Lithuania, Ukraine
Progressive legislation (in contrast to Czar)
- separation of church and state
- freedom of speech, press, assembly
- economic redistribution of land
Still in WWI
- failed offensives
- growing to be a massively unpopular war
The Provisional Government, 1917 IV
Most communities and urban centers were creating their own workers soviets (councils)
- Provisional Government encouraged "bottom-up" rule
- controlled their own militias
- constant criticism and tension with Provisional Government
The de facto power was the Petrograd Soviet in the capital
"We (the Provisional Government) do not have authority, but only the appearance of authority; the real power lies with the Soviet" - Minister of War Alexander Guchkov
The October Revolution, 1917
Bolsheviks violently seize control of the Petrograd Soviet and Provisional Government
Slogan: "all power to the soviets"
Capture and shoot the entire Romanov family
Conclude Brest-Livotsk treaty to end the war
Establish the Cheka (secret police) to weed out "enemies of the people"
The Russian Civil War, 1917-1921
Civil war amongs the "Reds" (Bolsheviks) and:
- "Whites" (anti-Communists, czarists, liberals, Provisional Gov't supporters)
- "Greens" (peasant armies that resisted both)
- "Blacks" anarchists & Ukrainian independence movement
- Intervention from WWI allies (U.S., Britain, France)
Bolsheviks win by 1921 and create the Union of Soviet Socialist Republics (USSR/CCCP)
War Communism I
Boettke (2001: 129)
- Usher in War Communism: pure Marxian socialism
- use local soviets to centrally plan cities and countryside
- abolish private property in land, capital, money
- collectivize agriculture
- suppress and execute "kulaks"
Boettke, Peter J, 2001, Calculation and Coordination, Chs. 6-7
Roberts, Paul Craig, 1970, "War Communism: A Reexamination," Slavic Review 29(2): 238-261
War Communism II
"Comrades! The insurrection of five kulak districts should be pitilessly suppressed. The interests of the whole revolution require this because 'the last decisive battle' with the kulaks is now under way everywhere. An example must be demonstrated."
Hang (absolutely hang, in full view of the people) no fewer than one hundred known kulaks, filthy rich men, bloodsuckers.
Publish their names.
Seize all grain from them.
Designate hostages - in accordance with yesterday's telegram.
Do it in such a fashion, that for hundreds of verst around the people see, tremble, know, shout: "strangling (is done) and will continue for the bloodsucking kulaks".
Telegraph the receipt and the implementation. Yours, Lenin.
"P.S. Find more reliable people"
War Communism III
Vladimir Lenin
(1870-1924)
"[H]ave councils of workers and servants been formed in the difference sections of the city; have the workers been armed; have the bourgeoisie been disarmed...have the capitalist factories and wealth in Munich and the capitalist farms in its environs been confiscated; have mortgage and rent payments by small peasants been canceled; have the wages of farm labourers and unskilled workers been doubled or trebeled; have all paper stocks and all printing-presses been confiscated so as to enable popular leaflets and newspapers to be printed for the masses; has the six-hour working day with two or three-hour instruction in state administration been introduced; have the bourgeoisie in Munich been made to give up surplus housing so that workers may be immediately moved into comfortable flats; have you taken over all the banks; have you taken hostages from the ranks of the bourgeoisie...have all the workers been mobilised for defence and for ideological propaganda in the neighboring villages?"
Lenin, Vladimir, 1977, "Message of Greetings to the Bavarian Soviet Republic", Collected Works, Vol. 4
War Communism IV
Vladimir Lenin
(1870-1924)
"The dictatorship of the proletariat, i.e. the organization of the vanguard of the oppressed as the ruling class for the purpose of suppressing the oppressors, cannot result merely in an expansion of democracy. Simultaneously, with an immense expansion of democracy, which, for the first time, becomes democracy for the poor, democracy for the people, and not democracy for the money-bags, the dictatorship of the proletariat imposes a series of restrictions on the freedom of the oppressors, the exploiters, the capitalists. We must suppress them in order to free humanity from wage slavery,their resistance must be crushed by force; it is clear that there is no freedom and no democracy where there is suppression and where there is violence," (pp.62-65).
Lenin, Vladimir, 1917, The State and Revolution
The Failure of Pure Socialism I
Utterly destroys Russian economy
Moscow depopulated by 50%, Petrograd by 60%
National income falls by 60% from 1913-level
Industrial output falls by 80% from 1913-level
Millions of peasants die from famine (collective agriculture)
1921 Kronstadt rebellion of workers against Bolsheviks
Boettke, Peter J, 2001, Calculation and Coordination, Chs. 6-7
Roberts, Paul Craig, 1970, "War Communism: A Reexamination," Slavic Review 29(2): 238-261
The Failure of Pure Socialism II
Vladimir Lenin
(1870-1924)
"We made the mistake of deciding to go over directly to communist production and distribution...We expected---or perhaps it would be truer to say that we presumed without having given it adequate consideration---to be able to organize the state production and the state distribution of products on communist lines in a small peasant country directly as ordered by the proletarian state. Experience has proved that we were wrong," (p.58).
Lenin, Vladimir, 1921, "The Fourth Anniversary of the October Revolution," Pravda (October 18, 1921) p.58
The Failure of Pure Socialism III
Vladimir Lenin
(1870-1924)
"We followed for more than three years, up to the spring of 1921...a revolutionary approach to the problem---to break up the social-economic system completely at one stroke and to substitute a new one for it. [We have been adopting] a reformist type of method [in order] to revive trade, petty proprietorship, capitalism. [C]ompared with the previous, revolutionary approach, it is a reformist approach...If, after trying revolutionary methods, you find they have failed and adopt reformist methods, does it not prove that you are declaring the revolution to have been a mistake in general?," (p.110).
Lenin, Vladimir, 1921, "The Importance of Gold"
The New Economic Policy, 1923
New Economic Policy
Restores private property and money
Citizens allowed to keep economic surplus and exchange for profit
Limited free trade
"Socialism" in name only
Lenin dies in 1924, what did he really want for the USSR?
Boettke, Peter J, 2001, Calculation and Coordination, Chs. 6-7
Roberts, Paul Craig, 1970, "War Communism: A Reexamination," Slavic Review 29(2): 238-261
Stalinism I
"The kindness of Stalin illuminates the future for children"
Stalin consolidates power through 1928
"Socialism in One Country" vs. international proletarian revolution
Period of "classical socialism" (1924-1953)
Five-Year Plans under GOSPLAN begin in 1928
- Russification, forced deportations/genocides of ethnic minorities
Gregory, Paul and Mark Harrison, 2005, "Allocation under Dictatorship: Research in Stalin's Archives," American Economic Review 43(3): 721-761
Stalinism II
Forced collectivization of agriculture
- All peasants forcibly resettled into communes
- Had to produce grain quotas
- Confiscated by the State
- Redistributed to urban centers, or sold on international markets (to earn money for industrialization)
Collapse of agricultural output
Holodomor in Ukraine: 7-10 million die of (intentional) famine
Stalinism III
"The disappearing comrade" Nikolai Yehzov (head of NKVD)
The Great Terror and Great Purge 1936-1938
- Between 0.6-1.2 million killed
Purges and show trials of prominent Bolsheviks
GULAG sustem of forced labor camps in Siberia
- Estimated 1-10 million deaths
KBG and self-policing, political violence against "counterrevolutionary behavior"
Personality cult
Gregory, Paul and Mark Harrison, 2005, "Allocation under Dictatorship: Research in Stalin's Archives," American Economic Review 43(3): 721-761
Stalinism IV, or, How to Destroy Civil Society
"Official Soviet portrait" of Pavel Morozov
The story of Pavlik Morozov emblematic of a self-policing society
No organization or organizing possible outside of Party-approved organs
- perpetual fear of informants, NKVD, KGB, Gulags
"Strengthen working discipline in collective farms"
De-Stalinization, 1953
Nikita Khruschev
1894-1971
Stalin dies in 1953, Nikita Khruschev (ultimately) becomes leader
Denunciation of Stalin's personality cult & de-Stalinization, less repression
"We Will Bury You"
Textbooks showed vast Soviet growth outstripping United States
Khruschev aimed at reforms to improve the lives of Soviet citizens, routinely botched
Deposed in 1964 → Brezhnev → Andropov → Chernenko → Gorbachev
"Economic growth" stops in 1970s
Mismanagement (Example)
- The Aral Sea (formerly the 4th largest lake in the world), 1989 vs. 2014
"It was part of the five-year plans, approved by the council of ministers and the Politburo. Nobody on a lower level would dare to say a word contradicting those plans, even if it was the fate of the Aral Sea."
Height of the Cold War
Attempts at Reform, 1980s
Mikhail Gorbachev
1931-
Gorbachev becomes Party leader in 1985, goal of reform
"Glasnost ("openness") to open up press and speech
"Perestroika" ("restructuring") relaxes central planning, allows some property rights, market competition, and trade
Nationalist risings, dissolution of Soviet Union in 1991
"Perestroika is a reliance on the living creativity of the masses"
Collapse 1989-1991
Boris Yeltsen denouncing the attempted coup atop a tank
Gorbachev's "Sinatra Doctrine" allowed other Soviet satellite states to determine their own affairs
The "Fall of Nations" and Fall of the Berlin Wall 1989
Tension between gov'ts of individual Soviet Republics (including Russia, led by President Boris Yeltsen) and the Soviet government in Moscow
Hardline communists attempt a coup against Gorbachev in August 1991, nonviolent resistance by Yeltsen
Gorbachev resigns as the President of the USSR
Dissolved in 1991 into 15 countries
Transition to Independent Nations
The Grocery Store I
"Yeltsin, then 58, "roamed the aisles of Randall's nodding his head in amazement," wrote Asin. He told his fellow Russians in his entourage that if their people, who often must wait in line for most goods, saw the conditions of U.S. supermarkets, "there would be a revolution."
"Yeltsin asked customers about what they were buying and how much it cost, later asking the store manager if one needed a special education to manage a store. In the Chronicle photos, you can see him marveling at the produce section, the fresh fish market, and the checkout counter. He looked especially excited about frozen pudding pops."
Source: Houston Chronicle
The Grocery Store II
"Even the Politburo doesn't have this choice. Not even Mr. Gorbachev," he said. When he was told through his interpreter that there were thousands of items in the store for sale he didn't believe it. He had even thought that the store was staged, a show for him. Little did he know there countless stores just like it all over the country, some with even more things than the Randall's he visited.
"The fact that stores like these were on nearly every street corner in America amazed him. They even offered him free cheese samples."
Source: Houston Chronicle
How Did Soviet "Central Planning" Work? I
"The captain of the Council of Soviets guides us from victory to victory!"
Recall the socialist calculation debate (Lesson 3)
Mises (1920) argued that rational allocation of resources under socialism was impossible
But the Soviet Union lasted for about 70 years!
How did "socialism" and "central-planning" work in the Soviet economy?
How Did Soviet "Central Planning" Work? II
No private property, collective ownership of production
GOSPLAN would supposedly create a central plan for the economy
- "Five Year Plans" beginning in 1928
Individuals lived in collective apartments (in cities) or on collective farms (in countryside)
Directed by GOSPLAN about where to work, what to produce, how much to produce (output quotas)
Threats to noncompliance
Goods sold at State-owned stores at controlled prices
Planning under Stalinism I
"Komsomol [Communist Youth] is the shock brigade of the 5-year plan"
Selectorate theory: Stalin had extremely high loyalty norm
- small winning coalition (Politburo) relative to selectorate
- with constant purges and paranoia of betrayal
Stalin had enormous discretionary power over how resources are used
- Obsession with industrialization
- collectivized agriculture, confiscate output of farms to sell grain on international markets, buy resources to build factories
Planning under Stalinism II
Soviets could have world-leading heavy industry, military, and space programs
Massive gains in industrial output and "economic growth" by coercively militarizing labor, forced savings, and creating capital
- brought out of inefficient feudal agriculture
Planning under Stalinism III
Yet the country can still have shortages of food and clothing for their citizens
- wait in line to get items sold at State-owned stores
- Soviet jokes
People turned to black markets, privileges, bribes, bartering favors, in order to acquire basic goods and services
""We pretend to work, and you pretend to pay us!"
Soviet Socialism as a Distorted Mercantilism I
Peter Boettke
"The mercantilist model includes the following major elements:
- the government is headed by an autocrat;
- this autocratic state extensively intervenes in the private economy and sponsors a large variety of monopolies and cartel arrangements;
- positions of monopoly status as well as various other restrictions on competitive entry are sold by the autocrat as a means of raising revenue and
- the autocrat employs a specialized bureaucracy whose function is to monitor the various monopolist-franchisees to ensure that they do not behave "competitively" in relation to one another, and also to enforce barriers designed to deter outside entrants (p.144).
Boettke, Peter, J, (2001), "Soviet Venality," in Calculation and Coordination
Soviet Socialism as a Distorted Mercantilism II
Loyal supporters have a stake in the system, residual claim ion the incomes of their offices
NWW natural state logic: ensure elites' marginal benefits of rents > possibility of resistance
Monitor each other to prevent competitive erosion of rents
No secure property rights in rent flows
- political opportunism and uncertainty at all levels
Network of informations to protect existing rent flows
Boettke, Peter, J, (2001), "Soviet Venality," in Calculation and Coordination
Soviet Socialism as a Distorted Mercantilism III
"Central planning" board set output quotas
- These were not minimums, but maximums!
Plans were set more by political connections than economic needs
- Stalin wanted to maximize his discretion to reward loyalists and punish suspected betrayers
Gosplan did not give specifics, intentionally vague and changeable, always "a draft" never finalized
Network of "apparatchniks", petty dictatorships managing their own planning fiefdoms
Boettke, Peter, J, (2001), "Soviet Venality," in Calculation and Coordination
Bad Incentives I
"Who needs this nail?"
"Don't worry about it! The main thing is that we immediately fulfilled the plan for nails!
Bad Incentives II
"Output targets were usually based on previous production levels. This created a huge incentive never to expand output, since this only meant having to produce more in the future, since future targets would be "ratcheted up." Underachievement was always the best way to meet targets and get the bonus," (Acemoglu and Robinson 2011, p.130).
"When the plan was formulated in tons of steel sheet, the sheet was made too heavy. When it was formulated in terms of area of steel sheet, the sheet was made too thin. When the plan for chandeliers was made in tons, they were so heavy, they could hardly hang from cielings." (p.130).
Bad Incentives III
"A whole set of laws created criminal offenses for workers that were perceived to be shirking...[A] law made absenteeism, defined as twenty minutes unauthorized absence or even idling on the job, a criminal offense that could be punished by six months' hard labor...between 1940 and 1955, 36 million people, about one-third of the adult population, were found guilty of such offenses. Of these, 15 million were sent to prison, and 25,000 were shot. In any year, there would be 1 million adults in prison for labor violations; this is not to mention the 2.5 million people Stalin exiled to the gulags of Siberia," (p.131).
"As for Gosplan, its main role was to provide Stalin with information so he could better monitor his friends and enemies. It actually tried to avoid making decisions. If you made a decision that turned out badly, you might get shot. Better to avoid all responsibility," (Acemoglu and Robinson 2011: 129).
The Economics of a Shortage Society I
- Consider a market with a market-clearing price of Pq where Q1 will be exchanged
The Economics of a Shortage (Society) I
Consider a market with a market-clearing price of P1 where Q1 will be exchanged
Government sets a price ceiling at ˉP, legal maximum price allowed
Qd>Qs: excess demand, a shortage!
Sellers will not supply more than Qs
The Economics of a Shortage (Society) I
Consider a market with a market-clearing price of P1 where Q1 will be exchanged
Government sets a price ceiling at ˉP, legal maximum price allowed
Qd>Qs: excess demand, a shortage!
Sellers will not supply more than Qs
For Qs units, buyers are willing to pay Pb!
The Economics of a Shortage (Society) II
If prices were allowed to adjust: buyers would bid higher prices to get the scarce Qs goods
Sellers would respond to rising willingness to pay, and produce and sell more
Until we return to P1 where Qd=Qs in equilibrium
But the price is not allowed to rise above ˉP!
The Economics of a Shortage (Society) III
- Official price is ˉP, sellers gain monetary revenues
The Economics of a Shortage (Society) III
Official price is ˉP, sellers gain monetary revenues
Competition exists between buyers to obtain scarce Qs goods
- Buyers willing to pay Pb unofficially
Goods are distributed by non-market means:
- Queuing
- Black markets
- Political connections, favors, corruption
Rents to those who can distribute the scarce goods
Economics of a Shortage Society IV
A typical grocery store in Vilnius, Soviet-controlled Lithuania, 1990
The Economics of a Shortage Society VII
Not in the interest of shopkeepers or Soviet officials to allow (higher) market clearing prices!
Setting prices low to shortage levels ˉP creates a de facto property right to allocate scarce desired goods
- Have control rights: can exclude others' access
- Don't have cash flow rights: not officially-protected ability to sell or exchange for value
Incentive: convert control rights into cash flow rights as soon as possible
- Buy/steal from your own store to barter with others, or sell on black market
Trade favor of your access to goods for favors from other people, to otherwise inaccessible goods
Boettke, Peter, 2001, "Soviet Venality," in Calculation and Coordination
Levy, David, 1990, "The Bias in Centrally Planned Prices," Public Choice 63(3): 213-226
The Economics of a Shortage Society VIII
"Dear customer, in the leather goods department of our store, a shipment of 500 imported womens' purses has been recieved. Four hundred and fifty of them have been bought by employees of the store. Fourty-nine are under the counter and have been ordered in advance for friends. One purse is in the display window. We invite you to visit the leather department to buy this purse!" (p.38).
White, Lawrence H, 2012, The Clash of Economic Ideas, pp.38-9
The Troubled Transition from Communism
Boris Yeltsen first president of Russian Federation
Transition to a market economy:
- privatize State-owned enterprises
- liberalize trade
- deregulate prices
- combat inflation
"Shock therapy" recommended by United States and IMF
- radical transformation all at once
Again: The Washington Consensus
Rodrik, Dani, 2006, "Goodbye Washington Consensus, Hello Washington Confusion?" Journal of Economic Literature 44(4): 973-987
Russia's GDP per Capita 1988-2018
Russia's GDP Growth Rate 1988-2018
Russia's Unemployment Rate 1988-2018
Russia's Inflation Rate 1988-2018
Post-Communist Countries: GDP per Capita
Post-Communist Countries: GDP per Capita Growth Rate
Post-Communist Countries: Unemployment Rate
Post-Communist Countries: Inflation Rate
The Post-Communist Blues II
Russia and post-Soviet states experienced sharp recessions in 1990s after transition out of communism
Recall: permanent shortage economy under Soviet socialism!
- prices were set artificially below market-clearing levels
- liberalizing prices ⟹ almost all of them will go up
- inflation, cost of living, etc
The Post-Communist Blues II
Under Soviet socialism, no private property, all organizations were owned by the State
Privatization, auction of State-owned enterprises to private hands
Rise of the "oligarchs"
