1 Goals and Instruments of Economic Development

WHAT is economic development or underdevelopment? The question is complex and elusive. The customary yardstick of a country’s level of development is its per capita product. This yardstick subsumes in fact a number of interrelated indicators which define the specific economic, demographic, and technological characteristics of a given country at a given period of its history. When translated into some international unit, the per capita product enables us to see the position of each country in relation to other countries on a world scale. Growth in total and per capita product may occur without leading to a shift in rank on the world’s per capita product scales; such a shift depends not only on the nature and extent of the changes which occur in a given country’s capacity to produce goods, but also on the changes which occur simultaneously in all other countries.

Changes in a country’s economic performance may be deliberately sought on the basis of a highly individualized type of policy tailored to the specific needs of any given under-developed country. Individualized policies may aim to achieve, over a selected time period, “adequate” per capita food supplies, clothing, and shelter, a more “equitable” land distribution, a more “satisfactory” taxation system, or any similar goal. In each case what would be considered adequate, equitable, or satisfactory would vary. What would be considered as appropriate minimum clothing and housing in the tropics would differ from the acceptable minimum in Labrador. Assuming that an underdeveloped country lacked a sufficiently responsive market mechanism, it would be the task of its policy makers and planners to define the “appropriate” goals and to gear the economy to meet them. This type of action would lead in time to genuine development, even though the country’s relative rank on the world scale might remain the same. In our rapidly changing world, as in Through the Looking-Glass, it may take a lot of running to stay in the same (relative) place.

The betterment of a country’s rank on the world scale involves a different type of goals and of means. The lag between a slowly developing country operating under an individualized type of policy and the leading countries using on an ever increasing scale the rapidly evolving technology of our time is increasingly difficult to bridge. The lag may be dramatically accented even when there are no severe disparities in resources between advancing and lagging countries. If one thinks of the relative position on the world per capita income scale of, say, Russia in the 1920’s, or Brazil in the 1960’s, one will realize how crucial it is to lag in technology. The head start of a leading country may have resulted from a unique combination of political, economic, demographic, cultural, and psychological elements; but the maintenance of this advance is secured not only through efficient use of resources under prevailing scarcities and un-changed technology, but above all through the continuous introduction of rapidly evolving techniques.

Changes in techniques imply not only changes in ways of using a fixed budget of resources but also changes in the size and composition of this budget itself. The policy maker of a newly developing country, if he aims to shift the relative position of his country on the world per capita product scale, can hardly satisfy himself with an “individualized” policy drawn, as it were, independently of the level of technology prevailing in the advanced countries. He must, on the contrary, take into account prevailing techniques and their prospective changes in the leading countries, ways of transplanting these techniques massively and adjusting them rapidly to his own country’s conditions. Liquidation of underdevelopment may thus be looked upon not only as achieving sustained growth in per capita product but also as a race to close a growing technological gap—between various sectors within each country and between different countries.¹ Such a conception of development involves, however, not independent, entirely individualized marginal policies, but massive changes in technology.

The crux of the matter is that the smaller and less well endowed a country is, and the lower it is on the world per capita product scale, then the more massive, other things being equal, its technological shift must be. The crucial problems which the policy makers of the emerging nations face in this respect are how to span in practice—in isolation or if possible in conjunction with other countries joined in some supranational association—an already immense and ever increasing technological gap, how to secure the massive investments which such changes entail, how to order among themselves the various possible and “necessary” branch and sectoral projects, and finally how to select among competing processes the combination able to yield both the largest total and the most appropriate product mix.

The Soviet debates carried out between 1924 and 1930, during the preparation of an all-out industrialization drive and of an all-embracing planning system, are of crucial interest in these respects. Notwithstanding the specific framework within which these debates occurred, the peculiarities of the instruments used for achieving the Soviet policy makers’ goals, and the misconceptions on which these policy makers operated, the Soviet experience is as revealing in its preparation as it is in its results.

Let us first recall that the Soviet policy makers’ concepts about the scope and the possible and “necessary” pace of industrialization of their country changed rapidly during the early 1920’s. The XIIth Party Congress and the XIIIth Party Conference, held respectively in April 1923 and January 1924, affirmed that “only a fundamental change in the political and economic situation in the industrial countries of Europe could seriously weaken the direct dependence of state industry on the position of peasant agriculture and create the conditions for a most rapid passage to the socialist economy.”² In other words, only the spread of the Communist revolution to the industrialized countries of Europe could create conditions favorable for the industrialization of Russia and its rapid passage to a socialist economy; only this could free Russian industry from its direct dependence on the output and capacity to save of Russian agriculture. But when the prospect of immediate foreign revolutions disappeared, the XIVth Congress, held in December 1925, decided to stress that Russia itself had, after all, everything that was necessary to construct in isolation a “fully socialist society,” and that the major goal of the Russian Communist Party was precisely to build “full socialism” in a “single country,” the USSR.³

In Marxian theory one economic system supersedes another because its productivity is higher.⁴ Capitalist productivity exceeded by far the productivity of the feudal community. Full socialism, according to this theory, should far exceed the productivity of capitalism. By setting the goal of constructing full socialism in the USSR the Soviet leaders implied, and soon affirmed, that their aim was to increase both the productive capacity of the country and its productivity to the point where they would “catch up with, in a minimal historical period, and then surpass the level of industrial development in the advanced capitalist countries,”⁵ through the means and efforts of an immense but backward, badly shattered, and isolated country. The Soviet goal of economic development was defined as a massive shift in rank on the world’s per capita product scale in the shortest possible period.

To place in perspective the magnitude of the shift involved in this goal, it is interesting to recall that in the late twenties Soviet per capita income may be estimated (in 1954 prices) at some $285 against $1,510 for the United States, that is, at 18.8 per cent or less than one-fifth of the latter.⁶ The Soviet Union’s relative position in the mid-1920’s was similar to that of Brazil in the mid-1950’s, and much higher than that of China or India.

In the 1920’s the USSR, with a population and a territory roughly two and a half times as large as that of Brazil,⁷ had 80 per cent of its working population in agriculture and 20 per cent in nonfarm occupations, against 65 per cent and 35 per cent for Brazil in the 1950’s. The ratio of industrial personnel to total population stood, however, in both countries in these two periods at 2.5 per cent. Except for certain key industries such as steel and metal-working, and some large agricultural developments, both countries relied essentially on backward or even primitive techniques in small-scale industry, handicrafts, and small-scale peasant farming. The technological characteristics of underdeveloped countries which were typical of both Russia and Brazil—poor technology, low amount of power per worker employed, low output per worker—were accompanied by the equally familiar demographic and cultural characteristics of underdevelopment: high fertility and mortality rates, dietary deficiencies in large segments of the population, rudimentary hygiene, high illiteracy.

In terms of income structure, agriculture in the USSR contributed up to 38 per cent of the total in the mid-1920’s, against 30 per cent in Brazil in the mid-1950’s, and industry and construction contributed 31 per cent against 23 per cent in Brazil. The per capita outputs of some key commodities were similar in the two countries: the USSR produced in the mid-twenties 10 kilograms of pig iron against 18 in Brazil and 14 kilograms of steel against 19 in Brazil. If in relative terms the USSR stood higher than Brazil on the world scale for various crucial commodities, still a vast gulf separated it from the U.S. economy. In the mid-twenties Russia produced 1.5 per cent of the world’s coal output, 2.0 per cent of its iron, 2.4 per cent of its steel, and 2.4 per cent of its electricity—against 45.0, 48.7, 51.8, and 43.2 per cent respectively for the United States. Brazil produced in the midfifties only 0.1, 0.5, 0.4, and 0.9 per cent, respectively, of world output in these branches; but the technology to which it now has access is far more advanced and versatile than that available to the Soviets in the 1920’s.

The problems faced by the Soviet policy makers in the twenties offer in certain respects close analogies to those faced today by low-income areas. The Soviet policy makers’ goal of expanding the country’s productive capacity, of raising its productivity, and of increasing sharply the level of per capita income recognized the need, now familiar in many underdeveloped areas, to cut through the vicious circle of low total income, low savings, and slow growth, and to secure at the same time revolutionary technological changes in certain branches of the economy. But the central goal of “catching up with” and even “surpassing” the most advanced countries was in the case of the USSR tied to a number of other aims—(a) the construction of an advanced industrial and military establishment, and (b) the liquidation in the process of industrialization of all “pre-capitalist and capitalist forms of production,” particularly in small industry, handicrafts, and agriculture. The aim of constructing an unsurpassed military establishment stemmed from the assumption that the Soviet system was engaged in a combat to the finish with the outside capitalist world. The aim of liquidating all other types of production and distribution within the USSR stemmed from the assumption that free-enterprise relationships, even in secondary sectors, engender forces hostile to the Soviet regime. The liquidation of “primitive” economic forms was taken to mean both the liquidation of certain social classes in the USSR—notably rich peasants and merchants—and the systematic elimination of market relationships in the economy as a whole, as we shall see subsequently.

The Soviet policy makers achieved from the onset of their regime an enormous concentration of power. All political power and a large share of economic power were concentrated in the leadership of the Communist party and the Soviet state. The nationalization of very large proportions of the key economic sectors (particularly industry, banking, trade, and transport) placed under the guidance and control of the party the “commanding heights” of the economy. It soon appeared, however, that the centralized management of the economy as a whole raised a number of problems completely distinct from the question of the extent of nationalization. In his speech at the last party congress he attended in 1922, Lenin remarked: “Here we have lived a year with the state in our hands, and under the New Economic Policy has it operated our way? No. We don’t like to acknowledge this, but it hasn’t. And how has it operated? The machine isn’t going where we guide it, but where some illegal, or lawless, or God-knows-whence-derived speculators or private capitalistic businessmen, either the one or the other, are guiding it. A machine doesn’t always travel just exactly the way, and it often travels just exactly not the way, that the man imagines who sits at the wheel.”⁸

Some believed that it would be enough to liquidate the “Nepmen and the kulaks”—the new merchants and the rich peasants—and to establish an all-embracing central plan in order to have the machine “travel just exactly the way” the Central Committee of the Party wanted it to. Others pointed out that all-round planning, in order to “supplant the anarchy” of market-directed relationships and avoid severe inter-sector disproportions, depression, and waste, required (a) a clear understanding of the ways in which the Soviet economy was already solving the problems of how, what, and for whom to produce; (b) a clearly thought through policy of allocating the bulk of investments; (c) some guiding lines as to what was actually feasible in terms of growth and some broad rules as to how to allocate resources throughout the economy among alternative branches likely to yield similar outputs, among alternative processes, or between present and future outlays; (d) a good understanding of how to reach consistency between goals as well as between decisions taken at the top and their implementation at the bottom.

Those who thought that the “liquidation” of the Nepmen and of the kulaks would solve everything looked with suspicion and even open distrust on some of the discussions which started to develop among the country’s economists. Those who understood that the centralized management of a single multi-branch, multi-plant corporation called the USSR poses an enormously complex and vital set of problems for the regime—concerning the conceptual system of the economy itself, the strategy of allocating investments, the rate of growth to be selected, and the planning procedure to be followed—engaged with violence and passion in the debates, which, unfortunately, marred and obscured some lines of the argument involved.

The debates, however, reached great depth, thanks to the appreciable intellectual freedom of the Soviet mid-twenties, the personal participation in the discussion of many non-Communist specialists who had rallied to the regime—mostly Social Democrats, Populists, or apolitical specialists—the lack of absolute centralization or rigid coordination among economic agencies and ministries, and finally the deep split among party factions before the establishment of the rule of an absolutely monolithic party obeying the inspired voice of an infallible chief. The canvass of the twenties was dominated by a large and varied number of personalities, agencies, and journals.