By Bryan Caplan
Before the Russian Revolution of 1917, “socialism” and “communism” were synonyms. Both referred to economic systems in which the government owns the means of production. The two terms diverged in meaning largely as a result of the political theory and practice of Vladimir Lenin (1870–1924).
Like most contemporary socialists, Lenin believed that socialism could not be attained without violent revolution. But no one pursued the logic of revolution as rigorously as he. After deciding that violent revolution would not happen spontaneously, Lenin concluded that it must be engineered by a quasi-military party of professional revolutionaries, which he began and led. After realizing that the revolution would have many opponents, Lenin determined that the best way to quell resistance was with what he frankly called “terror”—mass executions, slave labor, and starvation. After seeing that the majority of his countrymen opposed communism even after his military triumph, Lenin concluded that one-party dictatorship must continue until it enjoyed unshakeable popular support. In the chaos of the last years of World War I, Lenin’s tactics proved an effective way to seize and hold power in the former Russian Empire. Socialists who embraced Lenin’s methods became known as “communists” and eventually came to power in China, Eastern Europe, North Korea, Indo-China, and elsewhere.
The most important fact to understand about the economics of communism is that communist revolutions triumphed only in heavily agricultural societies.1 Government ownership of the means of production could not, therefore, be achieved by expropriating a few industrialists. Lenin recognized that the government would have to seize the land of tens of millions of peasants, who surely would resist. He tried during the Russian Civil War (1918–1920), but retreated in the face of chaos and five million famine deaths. Lenin’s successor, Joseph Stalin, finished the job a decade later, sending millions of the more affluent peasants (“kulaks”) to Siberian slave labor camps to forestall organized resistance and starving the rest into submission.
The mechanism of Stalin’s “terror famine” was simple. Collectivization reduced total food production. The exiled kulaks had been the most advanced farmers, and after becoming state employees, the remaining peasants had little incentive to produce. But the government’s quotas drastically increased. The shortage came out of the peasants’ bellies. Robert Conquest explains:
Agricultural production had been drastically reduced, and the peasants driven off by the millions to death and exile, with those who stayed reduced, in their own view, to serfs. But the State now controlled grain production, however reduced in quantity. And collective farming had prevailed.2
In the capitalist West, industrialization was a by-product of rising agricultural productivity. As output per farmer increased, fewer farmers were needed to feed the population. Those no longer needed in agriculture moved to cities and became industrial workers. Modernization and rising food production went hand in hand. Under communism, in contrast, industrialization accompanied falling agricultural productivity. The government used the food it wrenched from the peasants to feed industrial workers and pay for imports. The new industrial workers were, of course, former peasants who had fled the wretched conditions of the collective farms.3
One of the most basic concepts in economics is the production possibilities frontier (PPF), which shows feasible combinations of, for example, wheat and steel. If the frontier remains fixed, more steel means less wheat. In the noncommunist world, industrialization was a continuous outward shift of the PPF driven by technological change (Figure 1). In the communist world, industrialization was a painful movement along the PPF; or, to be more precise, it moved along the PPF as it shifted in (Figure 2).
The other distinctive feature of Soviet industrialization was that few manufactured products ever reached consumers. The emphasis was on “heavy industry” such as steel and coal. This is puzzling until one realizes that the term “industrialization” is a misnomer. What happened in the Soviet Union during the 1930s was not industrialization, but militarization, an arms build-up greater than that by any other nation in the world, including Nazi Germany.4 Martin Malia explains:
Contrary to the declared goals of the regime, it was the opposite of a system of production to create abundance for the eventual satisfaction of the needs of the population; it was a system of general squeeze of the population to produce capital goods for the creation of industrial power, in order to produce ever more capital goods with which to produce still further industrial might, and ultimately to produce armaments.5
Stalin’s apologists argue that Germany forced militarization on him. In truth, Stalin not only began World War II as Hitler’s active ally against Poland, but also saw the war as a golden opportunity for communist expansion: “[T]he Soviet government made clear in its Comintern circular of September 1939 that stimulation of the ‘second imperialist war’ was in the interests of the Soviet Union and of world revolution, while maintaining the peace was not.”6
Foolish as he looked after Hitler’s double-cross in 1941, Stalin’s assessment was correct. After World War II, the USSR installed communist regimes throughout Eastern Europe. More significantly, Japan’s defeat created a power vacuum in Asia, allowing Mao Zedong to establish a Leninist dictatorship in mainland China. The European puppets closely followed the Soviet model, but their greater prewar level of development made the transition less deadly. Mao, in contrast, pursued even more radical economic policies than Stalin, culminating in the Great Leap Forward (1958–1960). Thirty million Chinese starved to death in a rerun of Soviet collectivization.
After Stalin’s death in 1953, the economic policies of the Soviet Union and its European satellites moderated. Most slave laborers were released, and the camps became prisons for dissidents instead of enterprises for the cheap harvest of remote resources. Communist regimes put more emphasis on consumer goods and food production, and less on the military. But their economic pedigree remained obvious. Military strength was the priority, and consumer goods and food were an afterthought.
The most common economic criticism of the Soviet bloc has long been its failure to use incentives. This is a half-truth.7 As Hedrick Smith explained in The Russians, the party leadership used incentives in the sectors where it really wanted results:
Not only do defense and space efforts get top national priority and funding, but they also operate on a different system from the rest of the economy. Samuel Pisar, an American lawyer, writer, and consultant on East-West trade, made the shrewd observation to me that the military sector is “the only sector of the Soviet economy which operates like a market economy, in the sense that the customers pull out of the economic mechanism the kinds of weaponry they want.. . . The military, like customers in the West . . . can say, ‘No, no, no, that isn’t what we want.’”8
In a sense, the collapse of communism would not have surprised Lenin. Lenin knew that the party needed terror until it had solid popular support. When Mikhail Gorbachev assumed power, popular support had not materialized even in the USSR, much less in its European satellites. Gorbachev dismantled the apparatus of terror with blinding speed, undoing seven decades of intimidation in a few years. The result was the rapid end of communism in the satellites in 1989, followed by the disintegration of the Soviet Union in 1991. A patchwork quilt of nationalisms proved far more popular than Marxism-Leninism ever was.
Much, but not all, of the former Soviet bloc now has markedly more economic and political freedom—changes visible respectively in the Economic Freedom of the World (EFW) study and Freedom House (FH) country rankings (Table 1). In 1988, the republics of the Soviet Union had economic freedom scores below 1.9 In the same year, Freedom House classified the entire Soviet bloc as “not free,” except for “partly free” Poland and Hungary.
Free-market reforms have been harshly criticized, especially the drastic reforms derided as “shock therapy.” But the countries that reformed the most have seen the greatest rise in their standard of living, and those that resist change continue to do poorly.10 Critics lament large measured declines in output, but much of the “lost output” consists in products for which there was little consumer demand in the first place. Many former communist nations suffered hyperinflation, but only because—ignoring all sensible economic advice—they printed money to cover massive budget deficits. The “shock therapy” prescription would have been to slash government spending and/or sell more state assets.
|Country||2002 Economic Freedom Score||2002 Political Freedom Classification|
|Notes: EFW scores range, 0–10, 10 being freest; Freedom House classifies countries as free (F), partly free (PF), or not free (NF).|
China followed a different path away from communism. After the death of Mao in 1976, his successors essentially privatized agriculture, allowing relatively normal development to begin. Economic freedom increased significantly, but China remains a one-party dictatorship. Some attribute its impressive economic growth to this combination of moderate economic freedom and authoritarian rule. In large part, however, the growth reflects the abject poverty of Maoist China; it is easy to double production if you start near zero.
During the twentieth century, avowed socialists came to power around the world, but only the followers of Lenin approximated the original goal of abolishing private property in the means of production. Dictatorship and terror were the necessary means, and few noncommunist politicians wholeheartedly embraced them. The communists’ willingness to wage total war on their own people sets them apart.
Fascism, from the Concise Encyclopedia of Economics.
Socialism, from the Concise Encyclopedia of Economics.
Karl Marx biography, from the Concise Encyclopedia of Economics.
Bryan Caplan, The Idea Trap. November 2004.
Robert Service on Trotsky. EconTalk, July 2010.
Kevin McKenna on Solzhenitsyn, the Soviet Union, and In the First Circle. EconTalk, September 2018.
Frank Dikotter on Mao’s Great Famine. EconTalk, August 2018.
Casey Mulligan on Cuba. EconTalk, October 2016.
Craig J. Richardson, Cuba’s Dreams and Economic Reality. June 2019.