Soviet Union
Economy

The Soviet Union adopted a command economy, whereby production and distribution of goods were centralized and directed by the government. The first Bolshevik experience with a command economy was the policy of war communism, which involved the nationalization of industry, centralized distribution of output, coercive or forced requisition of agricultural production, and attempts to eliminate money circulation, private enterprises and free trade. The barrier troops were also used to enforce Bolshevik control over food supplies in areas controlled by the Red Army, a role which soon earned them the hatred of the Russian civilian population. After the severe economic collapse, Lenin replaced war communism by the New Economic Policy (NEP) in 1921, legalizing free trade and private ownership of small businesses. The economy steadily recovered as a result.

After a long debate among the members of the Politburo about the course of economic development, by 1928–1929, upon gaining control of the country, Stalin abandoned the NEP and pushed for full central planning, starting forced collectivization of agriculture and enacting draconian labor legislation. Resources were mobilized for rapid industrialization, which significantly expanded Soviet capacity in heavy industry and capital goods during the 1930s. The primary motivation for industrialization was preparation for war, mostly due to distrust of the outside capitalist world. As a result, the USSR was transformed from a largely agrarian economy into a great industrial power, leading the way for its emergence as a superpower after World War II. The war caused extensive devastation of the Soviet economy and infrastructure, which required massive reconstruction.

By the early 1940s, the Soviet economy had become relatively self-sufficient; for most of the period until the creation of Comecon, only a tiny share of domestic products was traded internationally. After the creation of the Eastern Bloc, external trade rose rapidly. However, the influence of the world economy on the USSR was limited by fixed domestic prices and a state monopoly on foreign trade. Grain and sophisticated consumer manufactures became major import articles from around the 1960s. During the arms race of the Cold War, the Soviet economy was burdened by military expenditures, heavily lobbied for by a powerful bureaucracy dependent on the arms industry. At the same time, the USSR became the largest arms exporter to the Third World. A portion of Soviet resources during the Cold War were allocated in aid to the Soviet-aligned states. The Soviet Union's military budget in the 1970s was gigantic, forming 40–60% of the entire federal budget and accounting to 15% of the USSR's GDP (13% in the 1980s).

From the 1930s until its dissolution in late 1991, the way the Soviet economy operated remained essentially unchanged. The economy was formally directed by central planning, carried out by Gosplan and organized in five-year plans. However, in practice, the plans were highly aggregated and provisional, subject to ad hoc intervention by superiors. All critical economic decisions were taken by the political leadership. Allocated resources and plan targets were usually denominated in rubles rather than in physical goods. Credit was discouraged, but widespread. The final allocation of output was achieved through relatively decentralized, unplanned contracting. Although in theory prices were legally set from above, in practice they were often negotiated, and informal horizontal links (e.g. between producer factories) were widespread.

A number of basic services were state-funded, such as education and health care. In the manufacturing sector, heavy industry and defence were prioritized over consumer goods. Consumer goods, particularly outside large cities, were often scarce, of poor quality and limited variety. Under the command economy, consumers had almost no influence on production, and the changing demands of a population with growing incomes could not be satisfied by supplies at rigidly fixed prices. A massive unplanned second economy grew up at low levels alongside the planned one, providing some of the goods and services that the planners could not. The legalization of some elements of the decentralized economy was attempted with the reform of 1965.

Although statistics of the Soviet economy are notoriously unreliable and its economic growth difficult to estimate precisely, by most accounts, the economy continued to expand until the mid-1980s. During the 1950s and 1960s, it had comparatively high growth and was catching up to the West. However, after 1970, the growth, while still positive, steadily declined much more quickly and consistently than in other countries, despite a rapid increase in the capital stock (the rate of capital increase was only surpassed by Japan).

Overall, the growth rate of per capita income in the Soviet Union between 1960 and 1989 was slightly above the world average (based on 102 countries). A 1986 study published in the American Journal of Public Health claimed that, citing World Bank data, the Soviet model provided a better quality of life and human development than market economies at the same level of economic development in most cases. According to Stanley Fischer and William Easterly, growth could have been faster. By their calculation, per capita income in 1989 should have been twice higher than it was, considering the amount of investment, education and population. The authors attribute this poor performance to the low productivity of capital. Steven Rosefielde states that the standard of living declined due to Stalin's despotism. While there was a brief improvement after his death, it lapsed into stagnation.

In 1987, Mikhail Gorbachev attempted to reform and revitalize the economy with his program of perestroika. His policies relaxed state control over enterprises but did not replace it by market incentives, resulting in a sharp decline in output. The economy, already suffering from reduced petroleum export revenues, started to collapse. Prices were still fixed, and the property was still largely state-owned until after the country's dissolution. For most of the period after World War II until its collapse, Soviet GDP (PPP) was the second-largest in the world, and third during the second half of the 1980s, although on a per-capita basis, it was behind that of First World countries. Compared to countries with similar per-capita GDP in 1928, the Soviet Union experienced significant growth.

In 1990, the country had a Human Development Index of 0.920, placing it in the 'high' category of human development. It was the third-highest in the Eastern Bloc, behind Czechoslovakia and East Germany, and the 25th in the world of 130 countries.
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