3 Strategies of Economic Development

STRATEGIES are ways of using resources in order to secure a given long-run objective, political, economic, or military. In war, as von Clausewitz explains, strategy is the general plan which links together the series of acts that are to lead to the final military decision. In time of peace the leaders of a market-directed economy do not need to have a fully integrated set of national economic goals, or to forge an integrated, all-embracing economic strategy. These leaders may have a number of economic policies, often conflicting ones, and a number of flexible strategies for meeting them.¹ In war, all policies and strategies are dominated by the overriding goal of victory. Then the market mechanism is seriously tampered with in order to ensure that the bulk of the country’s resources will be rapidly channeled to fulfill the needs of waging and winning the war. On the other hand, in the normal conditions of their operations, every enterprise must have some short-run, intermediate, or long-run objective concerning output and growth, and a broad strategy for reaching these goals. Usually the big corporations have well-planned long-run objectives concerning output, expansion, and diversification based on forecasts and expectations concerning prices and the activity of competing firms or of related branches.

The Soviet economy may be likened to a single multibranch, multi-plant corporation with a fixed, overriding goal, that of catching up with and surpassing the highest productive indices of capitalism, i.e., the indices reached by the economy of the United States. This goal was officially proclaimed in 1925 as the basic goal of Soviet economic policy. We should recall here that according to Marx’s theories, socialism should by definition be more productive than the system which it displaces. Some persons, like the so-called Left Opposition of the Russian Communist Party headed by Leon Trotsky, stressed this tenet repeatedly from the early 1920’s on, and affirmed that socialism could actually triumph only on a world scale and certainly could never be “completed” in a backward economy lagging far behind capitalism in productivity. The Left therefore affirmed the need to establish within this backward economy the “dictatorship of industry” as the unique lever of internal socio-economic change, and propounded world revolution as the only lever for changing the relationships of forces between the USSR and the rest of the world. Other members of the Communist party, most of whom were to be later connected with the so-called Right Opposition identified with Nikolai Bukharin, posited that full socialism could be constructed within the frontiers of a single country, even at “a turtle’s pace,” whatever the backwardness of the economic structure inherited from capitalism. But some of the Communists of the Right —G. Y. Sokolnikov, for instance—maintained that the USSR could not build socialism in isolation, since no country could sever itself from the rest of the world, hide behind a monopoly of foreign trade, and keep on trailing in productivity behind the rest of the world.

Those who, like Stalin, were soon to be identified with a “Center” tendency in the party’s leadership, and who placed their entire faith in the political might gained by the party’s machine in Russia, embarrassed themselves little with bookish definitions of socialism. They took over the tenets of Bukharin and soon affirmed not only that socialism was in construction in the USSR but that this construction was rapidly being finished. By 1937 they officially proclaimed in effect that socialism had been “completed,” though the country continued to lag in output and in productivity on almost all counts in comparison with capitalism.

The deep cleavage between those who stressed the impossibility of building socialism in an isolated and backward country and those who proclaimed the possibility of building socialism in isolation had enormous consequences in the political field. Paradoxically, in the economic field these divergences did not prevent all factions in the mid-1920’s from subscribing to the same overriding goal of industrialization. All affirmed their desire to expand substantially the country’s productive capacity and to shift Soviet industry and with it the Soviet economy as a whole onto a “higher technological plane.” The Left did so primarily because of its belief in the absolute necessity of establishing the “dictatorship of industry” in order to maintain the “dictatorship of the proletariat;” the Right did so because of its conviction that an appropriate type of industrialization would provide the best cement for the “workers’ and peasants’ alliance” and would stabilize the regime; the so-called Center did so because it saw in industrialization a lever for consolidating its own political power inside the USSR, and for guaranteeing Russia’s military position vis-à-vis the neighboring capitalist powers.

But broad agreement on a long-run, overriding goal of industrialization did not imply agreement on the immediate pace of capital formation in the economy as a whole, and in each sector in particular; on the methods of mobilizing resources for the purpose, e.g., voluntary or forced saving; or, finally, on the specific development pattern to be followed by setting up priorities for this or that sector or for this or that industrial branch. The question of the choice of pace, methods, and pattern of development depended on the specific weight assigned by the policy makers to a number of political, social, and economic “proximate” (or intermediate) ends, such as the importance of industrial workers in the total labor force, the relationships between state-owned industry and privately owned agriculture, etc. The set of decisions on pace, pattern, and methods of development, taken on the basis of various assumptions concerning the relationship among intermediate ends and the ultimate goal of industrialization, forms what may be called the Soviet strategy of economic development.

The relationships between agriculture and industry and their respective rates of savings, capital formation, productivity, capital output ratios, and so on, are of crucial importance for all countries starting on the path of economic development. The relationships lose, however, in significance when the weight of agriculture as a sector decreases within developed, industrialized economies. Writing at the end of the eighteenth century or during the first half of the nineteenth, the classical economists naturally paid close attention to sectoral growth and to differences between industry and agriculture. They placed the distinction between these two sectors at the heart of their analysis of growth. Assuming that agriculture operated under the law of diminishing returns, while industry on the other hand operated under the sign of constant or increasing returns to scale, they viewed agriculture as the sector placing the ultimate limits on both economic growth and population growth. For obvious reasons, theories and models of growth for advanced countries have since taken new paths and have discarded as insufficiently enlightening the interactions of industry and agriculture.

Following the classical tradition, Marx also drew a sharp contrast between the significance of industry and that of agriculture in the process of growth. But he viewed their interrelationships dynamically: he assumed that agriculture would ultimately be fully industrialized, so that it would be, so to speak, sucked in by industry. In his growth model—his so-called schema of simple and enlarged reproduction, which we have already discussed—Marx no longer distinguishes between industry and agriculture; instead he separates the total production of the society into two “departments” (or sectors) : the sector of means of production and the sector of articles of consumption. All the various branches of production belong to one of these two sectors in the Marxian model, which applies to an abstract, fully developed “commodity society.”

Using the Marxian approach for analyzing the development of capitalism in Russia at the end of the nineteenth century, Lenin asserted in a detailed attack against the theories of the Russian Populists (Narodniki) that economic growth posited what we may call economic transformation as well as certain “necessary” relations between the producers’ and the consumers’ goods sectors.² For Lenin, transformation meant both the continuous growth of the industrial population at the expense of the agricultural one, and the ultimate industrialization of agriculture itself. Smooth development, on the other hand, required specific relationships between Marx’s two sectors and their components. Working out the relationships of the Marxian model, Lenin affirmed that: (a) the limits of growth are necessarily set for a closed economy by the excess of its producers’ goods output over its consumption of capital and raw materials; (b) that in the process of development the typical elements are the multiplication of interindustry transactions and the expansion of the demand for producers’ goods, rather than the demand for consumers’ goods;³ (c) in growth, the “organic composition” of capital “necessarily” changes in such a way that the increment of expenditures on capital goods over the increment of expenditures on labor increases in both sectors, and at a faster rate in the first than in the second sector.⁴ Though some of Lenin’s propositions are questionable,⁵ they were viewed by Bolsheviks of all factions as uncovering the mainsprings of growth. It was not easy to determine, however, to what extent the relationships occurring in a capitalist “commodity economy” applied in the USSR of the mid-1920’s. The Bolsheviks were evidently ready and willing to increase capital accumulation rapidly and to make vast changes in the systems of ownership and production. But in trying to reshuffle the socio-economic parameters they had to take into account first the relationship between the state-managed industrial complex—particularly its large-scale industrial component—and privately owned small-scale agriculture, and second, the political relations between the Soviet state machine as a whole and the vast mass of the peasantry. The prevailing and prospective relationship between (state) industry and (private) agriculture became a controversial question as the policy makers prepared to gear the economy for rapid growth.

The problems of the interrelations between industry and agriculture in respect to savings, investment, and growth were extensively examined during two crucial debates. The first, on the so-called “scissors” crisis, opened in the summer of 1923 and closed formally in 1924; the second, on mobilization of investible resources, on pace and pattern of capital formation, opened in 1925 and closed formally by the end of 1928. Both debates are of great interest not only for understanding the evolution of the USSR but also for grasping some of the problems which in the underdeveloped countries today face the policy makers and planners who set their sights on rapid economic growth.

The so-called “scissors” crisis of the summer of 1923, which marked, as Maurice Dobb puts it, “the parting of the ways between two fundamentally different views,” concerned both the policy introduced since the beginning of 1921 under the famous name of New Economic Policy (NEP) and the general orientation of the regime in respect to economic development during the whole period of transition between capitalism and socialism.⁶ The crisis took its name from a very sharp reversal in the “terms of trade” between industry and agriculture, or between town and village, from 1922 to 1923; graphically, the price trends suggested an opened scissors. In 1922 the exchange ratio of agricultural to manufactured goods had favored the peasantry and had induced it to increase the sown area and grain output; but in the summer of 1923 the index of industrial prices rose sharply while that of agriculture fell substantially. A widening gap developed between industrial and agricultural prices, which threatened the modest progress that had been achieved, stirred up the peasantry, and imperiled the supplies of raw materials to industry and of grain to the towns.

A number of first-rank leaders of the party, and a number of economists and officials who sided with them, attributed the crisis to the “increasing disproportion” between the very slowly recovering industry and the rapidly expanding agriculture. Industry was operating below capacity levels, with obsolete equipment, and within an “anarchic” (free) market with no central coordination. This faction, which presented its views under Trotsky’s banner of “dictatorship of industry,”⁷ advocated the maintenance of high industrial prices and of large state subsidies in order to accelerate the retooling of industry and the increase of its output; it also proposed centralized planning in order to achieve a better intersector coordination. Those who criticized this so-called “industrialist” tendency, and who represented at the time the majority of the party and of public opinion, affirmed that the crisis had arisen because of state industry’s abuse of its monopolistic power, an abuse practiced without any regard to either the political or the economic long-run consequences of such a policy. This interpretation affirmed that industry was deliberately forcing the terms of trade in its favor and for the purpose was producing a small output of consumers’ goods, that is, it was generating a “goods famine.” The “anti-industrialists” requested that the crisis be solved by curbing industry’s managers, decreasing prices, and orienting industrial output not toward heavy goods but toward the specific type of goods needed by the peasant market.

The debate on the scissors crisis and the following debate on industrialization were deeply intertwined with other political discussions among the Communist leaders on a number of decisive internal and international problems which fall outside the scope of this essay. The economic positions of the Left—presented in elaborate form by Piatakov and Preobrazhenskii—were rejected by the leadership of the party early in 1924. The Thirteenth Party Conference in January 1924 condemned the over-all policy of the industrial managers, their price rises and the abuse of their monopoly power in the market, stressed the dependence of industry’s growth on the situation of peasant agriculture, and affirmed that this dependence could be changed “only by political and economic changes in the industrial countries of Europe” —not within the USSR alone.⁸ The party leadership decided to close the “scissors’ ” blades by lowering industrial prices and by letting agricultural prices rise.

The so-called industrialization debate grew out of the scissors crisis, and raised in an even more acute form the same problems. This time the debate was prompted by (1) the continuing and prospective aggravation of the shortage of manufactured goods of large consumption—the so-called “goods famine;” (2) the pressing need for renewing capital equipment in industry, the latter having used up by the end of 1925—as the then President of the Supreme Economic Council, Felix Dzerzinski, put it—“all the capital bequeathed to us by the bourgeoisie, whether in funds, buildings, or materials;” (3) the necessity of mapping at the close of the period of postwar recovery some specific ways toward the “reconstruction” of the economy, that is, toward the introduction of new processes, new equipment, and even new industrial branches.⁹ The debate put again, in a more virulent form, the question at what pace industry and agriculture should develop, in what ways investible resources should be mobilized, and finally, what specific pattern of allocation of resources between industrial branches should be chosen.

Two basic strategies emerged among the solutions proposed. The first—which may be designated as the Rightwing strategy—stressed the importance of peasant output and peasant demand for consumers’ goods. It advocated the priority development of agriculture and of the special branches of industry which cater to peasant demand. The Left-wing strategy emphasized the importance of industry and of the latter’s own demand for capital goods. It advocated the rapid development of industry in general and of the heavy industrial branches in particular, and to this end suggested that real savings should be transferred from agriculture to industry. This Left-wing strategy, which was adopted after a set of maneuvers that led to the crushing of both Left and Right by the party’s “Center” under Stalin, was proclaimed to be the “Soviet method of industrialization.” Let us consider the main arguments advanced during this debate, since the discussion clarifies the underlying assumptions and the basic tenets of the strategy of development applied unflinchingly by the Soviet leadership since then.

The Right was strongly influenced by the writings of various professional economists and experts who stressed the importance of a flourishing agriculture in order to expand the domestic market and to establish a broad-based connection with the world market. Outstanding among these economists was Lev Shanin, who presented in its most elaborate form the case against “forced” industrialization.¹⁰ Addressing himself to the immediate problem of the “goods famine,” Shanin affirmed that the crisis was generated by the discrepancy between the patterns of investment and of demand. The state industry, said Shanin, is emphasizing output of capital goods in the face of an expanding peasant demand for consumers’ goods, a demand sustained by increased peasant sales of raw materials and grain. Shanin suggested that heavy industry was, in the given conditions, developing too fast, and that industrial investment ought to be reoriented toward the light industrial branches in order to meet the peasant demand. To avoid goods shortages, investment in heavy industry should be postponed until large inventories of manufactured consumers’ goods could be built up either through the activity of domestic industries or through importation. In the meantime the bulk of investible resources should be oriented toward agriculture, since the latter could absorb more labor per unit of capital invested, could yield more per unit invested because it had low capital-output ratios, and could build up large savings on account of its low consumption rates. Part of these savings, added Shanin, could be subsequently tapped for investment in industry. Assuming a profit of 6 per cent in industry as compared to 15 per cent in agriculture, Shanin asserted that a hundred units of capital “diverted” from agriculture to industry in one year would amount the following year to 106 additional units in industry, the third year to 112.3, the fourth year to 119.1; whereas if the original 100 units were left in agriculture they would total 115 units the following year, 132.2 the third year, and 152.0 the fourth year.

Shanin concluded that by reinvesting in agriculture and by postponing the diversion of its resources toward industry, the latter could subsequently develop at a more rapid pace. The growth of agriculture would finally allow the expansion of the economy as a whole. Since foreign trade would be intensified and stocks of consumers’ goods would be accumulated, industry could finally forge ahead in new directions without causing commodity shortages. For Shanin, the best sequence to be followed to keep the country on the path of growth was the traditional one: starting with the development of agriculture, continuing with the development of agricultural industries working for export, then with the growth of light industries supplying the domestic market, and ending up, at the appropriate moment, with the expansion of heavy industries when an additional demand for consumers’ goods created by the increased employment in the producers’ goods branches could be fully satisfied. Shan-in’s thesis thus implied continuous concern with the adequacy of aggregate demand for the Soviet economy’s product, a preoccupation which had loomed large during the so-called scissors crisis. Actually, as Soviet industrialization got under way, this problem receeded into the background and finally lost all significance. Insufficiency of aggregate demand is not a serious problem in an industrializing underdeveloped area.

While accepting some of Shanin’s assumptions, Bukharin —first the party’s whip against the Left wing, later the spokesman of the Right Opposition—rejected outright Shanin’s “indefinite” postponement of investments in certain industrial branches. Bukharin affirmed that the state necessarily had to tap part of the savings accumulated in agriculture for the sake of the development of industry. What he considered crucial, however, was the “optimal” size of such a transfer; the aim for him was securing optimal growth of both sectors. Rephrasing Shanin, Bukharin wrote: “the most rapid pace of growth of industrial development does not depend at all on the maximum funds which we take out of agriculture. This matter is not that simple. If we take less today, we allow a larger accumulation in agriculture and at the same time we insure a larger demand for the products of our industry tomorrow. Thanks to the increased income in agriculture, we shall be able to take from it more next year than in the past, and we shall insure a higher growth in future years and even higher achievements for our state industry.”¹¹

The cornerstone of Bukharin’s argument is that industry depends on both agricultural supply and peasant demand, but that agriculture in turn needs not only manufactured goods of mass consumption but agricultural machinery as well. The limits of industry’s growth are directly governed by the growth of agricultural output in grain, cotton, hides, wool, flax, and so on. Reduction in grain output means a shrinkage of exports and consequently of imports of the capital goods with which to start the “reconstruction;” while reduction in output of agricultural materials reduces the output of domestically manufactured consumers’ goods. Bukharin rejected the affirmation of the industrialists, according to whom “industry was lagging behind agriculture,” and he added that industry could easily lower its prices by reducing waste, inefficiency, and bureaucratism, and by checking the danger of abusing monopoly power. “Industry,” added Bukharin, “will develop faster if we accelerate the circulation of commodities between town and countryside. If this trade becomes more active, the total of our profits will grow at the same price or even with lower prices.”¹² During the initial period of reconstruction, agriculture will provide the means with which equipment can be imported from abroad. But a domestic heavy industry will have to be developed in order to render the country independent of the world market and to transform agriculture into a more productive sector. Bukharin’s advocacy of the need to develop heavy industry along with light industry became the party line at the Fifteenth All-Union Party Conference in November 1926.¹³

The party’s Left wing led an all-out attack against Shan-in’s theses and against Bukharin’s theories. The Left’s economic arguments were developed by E. A. Preobrazhenskii, shortly after the scissors crisis, in a number of articles published in 1924 and 1925 and reprinted in 1926 in his book Novaia ekonomika (New Economics). ¹⁴ New Economics remains a basic document for an understanding of the foundations of the Soviet theory of economic growth. Discarding Shanin’s arguments on the advantages of higher returns immediately obtainable from investing in agriculture, Preobrazhenskii affirmed that the introduction of production techniques equal or superior to those of capitalism would be possible only by securing a high rate of capital accumulation and, in the conditions of the USSR, by achieving a high degree of concentration of investments in the producers’ goods industries. Ultimately, he added, reductions in the prices of goods of mass consumption will be secured by reducing the prices of capital goods needed by the consumers’ goods industries. Positing that the establishment of a “new technical base as . . . underpinning for the complex of the state economy” requires the introduction of capital-intensive methods of production—though capital may be scarce relative to labor¹⁵—, Preobrazhenskii held that large-scale production is actually less wasteful than small-scale production, since the latter ties up larger amounts of resources in its production cycle for longer periods.¹⁶ While the technical basis of industry is being revamped, maximum protection must be provided against the pressures of the “still stronger” capitalist economy.

Until Soviet industry bridged the gap between its productivity and that of the most advanced countries, agriculture must remain highly labor-intensive: this, states Preobrazhenskii, is the inevitable “penalty of underdevelopment.”¹⁷ But once the heavy industry branches are fully modernized, a vast transformation of agriculture and of the economy as a whole along new lines becomes possible.¹⁸ During the decades in which the productivity of Soviet industry lags behind that of the most developed capitalist country, the United States, the massive investments required for retooling and modernization will have to be extracted from agriculture by a variety of means. Preobrazhenskii defined this long period as the “infant stage of development of the socialist industry,” and asserted that the more backward a socialist country, the greater is the importance of small-scale ownership in its economy, and the more heavily its “socialist accumulation” will have to depend on a massive diversion of savings (surplus production) from agriculture to industry. This, said Preobrazhenskii, is “the law of primitive socialist accumulation,” holding sway throughout the “infant stage of development of the socialist industry.” Preobrazhenskii posited (a) that potential savings exceed actual savings in agriculture, (b) that the investment needed for retooling the state industry, moving it onto the “highest technological plane,” and expanding it is for all practical purposes unlimited (that is, employment opportunities in industry are determined by the availability of capital rather than by the demand for output), and finally (c) that peasant demand is therefore of secondary importance and cannot provide the stimulus needed for large-scale industrial growth.

Following the premises of Preobrazhenskii, Piatakov and other leaders of the Left stressed repeatedly in the mid-twenties the idea that for the Soviet economy as a whole the question of stepped-up capital formation in industry was one of crucial importance, that industry had largely used up its previous capital, and that massive retooling was indispensable. Rejecting the idea that industry could continue to maintain the growth rates attained by it during the recovery period, Piatakov added that industry and agriculture had been in a wrong relationship before the war, and that there was no reason whatever for the Soviet regime to perpetuate this type of structural imbalance.¹⁹ The Left therefore underlined the need for a swift reallocation of scarce resources in favor of industry and for a stepped-up rate of investment, taking for granted the ability of the regime to solve such thorny questions as how to secure the needed commodities, skills, and organization.²⁰

The Left-wing position, dubbed in the early 1920’s “superindustrialist,” was at first resolutely rejected by the party leadership. Preobrazhenskii’s economic formulas were solemnly condemned. The idea of developing heavy industry at the expense of agriculture was rejected as a major danger to the alliance between workers and peasants. The theory of “primitive socialist accumulation”—patterned on Marx’s theories of the brutal exploitation and dispossession of small landowners during the dawn of capitalism—was branded heretical and a menace to the stability of the Soviet regime.

Soon, however, the party radically changed its policy. The reasons for this reversal were many. Among them may be noted: the continuing political and economic isolation of the country; a sharpening differentiation among the peasantry (leading to the strengthening of a rich peasant stratum) ; and finally increasing difficulty in persuading peasants to market larger and larger amounts of grain in order to maintain a high rate of industrialization and urbanization. Taking over the policies of the defeated Left and emphasizing even more than before the need for heavy industry and for autarkic development (“Socialism in One Country”), the party leadership called for a massive investment effort and for rapid industrialization as the sine qua non of Soviet survival. Closing the debate on strategy and opening at the end of 1928 the era of all-round planning, Stalin declared in a famous attack against the Right that the party’s policy would henceforth “proceed from the premise that a fast rate of development of industry in general and of the production of the means of production in particular is the underlying principle of, and the key to, the industrialization of the country, the underlying principle of, and the key to, the transformation of the entire national economy along the lines of socialist development. But what does a fast rate of development of industry involve?” asked Stalin; he answered, “It involves the maximum capital investment in industry.”²¹

Thus sharply divergent orientations were debated by the Soviet Union’s policy makers concerning the pace of the country’s economic growth, the mobilization of its investible resources, and the pattern of its development. For Shanin, and for Bukharin and the Right, agriculture was the pacesetter for the growth of the economy as a whole; for Preobra-zhenskii and the Left, and later for Stalin, heavy industry was the key. For the Right, the need for a sustained rate of capital formation in agriculture set definite limits to the transfer of its “surplus product” to industry. For the Left, the economy could be propelled into a phase of sustained high growth only if, during an initial critical period, substantial “surpluses” were extracted from agriculture for the development of basic industries.

Bukharin had conceded that certain transfers would have to be made from agriculture to industry, but he opposed the idea of manipulating industrial prices. Other economists, deeply concerned with the stability of the currency—Professor Katsenelenbaum for instance—suggested that industrialization be carried out exclusively through voluntary savings channeled through appropriate state credit institutions.²² Katsenelenbaum rejected, as damaging to incentives to higher output in agriculture, the manipulation of industrial prices and the practices of high monopoly profits and high taxation. Preobrazhenskii advocated, on the contrary, the deliberate turning of the terms of trade in favor of industry—“unequal exchange” between agriculture and industry—up to the moment when a fully modernized industry would be able to turn out goods at prices lower than those on the world market. When, under Stalin, the leaders officially adopted the policy of “pumping over” capital accumulation from agriculture to industry, they solemnly promised not to increase prices of manufactured consumers’ goods any further, but to decrease them as rationalization progressed in the state-industrial complex.²³ In practice, however, all producers’ goods’ prices were kept constant while consumers’ goods’ prices climbed steadily throughout the period of allaround planning. When price cuts were finally practiced, they affected only slightly the consequences of decades of inflation, and changed nothing at all in the underlying methods of taxation, which weighed heavily on the peasants both as producers and as consumers.²⁴

Concerning the pattern of development, Shanin had advocated the traditional sequence, starting with agriculture and ending with heavy industry after light industry had grown sufficiently. Bukharin had switched about 1925 to the idea that heavy industry had to grow pari passu with light industry, in order to meet the peasant demand for agricultural machinery and consumer goods, while simultaneously preparing for the independence of the Soviet economy from the world market. The idea that industry and agriculture must develop simultaneously, the first at a slightly faster rate than the latter, was presented in 1926 as the “United States pattern of industrialization,” the model to be followed by the USSR.²⁵ Other policy makers or economists—V. A. Bazarov for instance—advocated the development of light industries in order to cope with the immediate “real mass demand” of the peasant market, and of certain basic industries (like electricity) to supply the potential demand of the economy.²⁶ Finally, Preobrazhenskii and the Left suggested a complete departure from the idea of the concurrent expansion of a variety of industries, so planned that the pattern of output would match the pattern of end-use—an idea stressed by Bukharin in respect to strategy, and by Kondrat’ev and others in respect to planning.²⁷ Preobrazhenskii and the Left stressed instead the idea of systematic thrusts forward by heavy industry, an idea interpreted subsequently by the planners as positing the design of a more or less consistent program around the “leading links” (the producers’ goods industries) and of open-end planning below the leading links. The discarding of the simultaneous, balanced-development approach in favor of vigorous thrusts forward by the leading branches followed by the other branches and sectors at a variety of loosely planned paces of growth became typical of Soviet strategy and planning.²⁸

The acceptance of the idea of a continuous massive development effort in heavy industry determined a number of other decisions, not only on the rate of capital formation in the other sectors but also on the organizational set-up of the economy as a whole and of agriculture in particular. Preobrazhenskii had bluntly affirmed that a high rate of investment required the extraction of a large share of marketed produce from agriculture by taxation and price manipulation, and the eventual dispossessing of the small peasant. The party had first rejected the theory of primitive socialist accumulation, but once it proceeded to extract a large share of savings from agriculture, it had to carry out in practice all of the other conclusions of Preobrazhenskii. The collectivization of the peasantry, started in 1929 and carried out forcibly throughout the early 1930’s, was instrumental in increasing the marketed share of agricultural produce. The peasant was compelled to deliver a crushing share of his produce at ridiculously low prices, while at the same time he lost control over his land.²⁹ The party’s final strategy of development proceeded from the premises (a) that discontinuities existed on the supply side of savings and that large “surpluses” could be tapped by forcibly changing the structural set-up in agriculture; (b) that Soviet heavy industry could be “reconstructed” and shifted onto a high technological level without much concern for the demand of consumers in general or of the peasants in particular; and (c) that the “reconstruction” of industry would eventually change the technological conditions prevailing in agriculture, but that in respect to capital formation agriculture would have for a long time only a low priority.

The underlying principle of the NEP had been that the revival of industry was dependent on the revival of agricultural production. Preobrazhenskii and the Left suggested that this idea, sufficient for the period of recovery, was not satisfactory for the period of reconstruction. For the peasants’ demand for consumers’ goods one had to substitute the virtually unlimited demand for capital goods of the state and of its industry. The country was isolated; its capacity for survival in a world dominated by a different social system was uncertain; class differentiations within the peasantry represented a potential danger for the regime; there was doubt that the peasants would voluntarily market a sufficiently large proportion of their produce to advance the industrialization of the country to a significant extent. All these considerations finally pushed the “Center” of the party out of its “equilibrium” position, forced it to take over the theses of the “industrialists,” and made it turn these theses into the regime’s official strategy of development.

Notwithstanding a variety of changes in political climate and in organizational method, the tenets of this strategy have gone unchallenged in the USSR from Stalin to Khrushchev. It is doubtful whether they will be seriously challenged so long as the Soviet government continues to aim at reaching an unrivaled military and economic posture in the world.

The public at large rightly identifies the Soviet method of industrialization not with the emphasis upon heavy industry in general but with a set of specific options taken on the eve of the all-round planning era (opened in 1928) concerning certain key industrial branches—electricity, steel, and machine tools. One can hardly separate the Soviet strategy of development from these specific technological decisions. According to what criteria were these choices made? Originally, the logic of the situation of an isolated country shattered by the war, as well as careful observation of the basic technological trends in the most industrialized countries, guided the technological choices by Soviet policy makers and planners. Increasingly, however, the leaders’ preferences centered on these intermediate products (steel, etc.) because they viewed them as the key ingredients of an autarkic industry and a high defense potential. As Soviet industrialization developed, new technological decisions had to be made by the Soviet engineers now operating at the technological frontier; however, at no time were the original decisions concerning energy, steel, and machine tools reexamined or treated as other than indispensable foundations of the whole Soviet strategy of economic growth.

Before the First World War a Communist leader and engineer by training, Gleb Krzhizhanovskii, had pointed out the key role played by electricity in the development of industrial Germany, and had suggested that Russia could solve its own agricultural problems and even “that of the world” if only it would develop extensively the use of electricity in agriculture.³⁰ The true importance of energy was, however, brought home to the Soviet leaders during the fuel crisis of 1920. Under the impact of the crisis and on the advice of Krzhizhanovskii,³¹ Lenin seized in 1920 upon the idea of the importance of electricity and coined his famous slogan, “Communism is the power of the Soviets plus electricity.”³² The first Soviet plan, launched in 1920, concerned electricity: the so-called Plan GOELRO³³ was in fact the first Soviet longterm plan scheduling a vast construction program for an entire industrial branch. Though in practice this plan contributed only modestly toward Soviet recovery and toward the “reconstruction” of the economy as a whole, it has been glorified out of all proportion in Communist literature. The so-called “energy concept” of the economy—the idea of transforming all production functions throughout the economy and of securing large increases in output by means of electrification on a vast scale—became after 1920 an unquestioned article of Communist faith. The first decision of any Communist regime, from eastern Europe to China, has been in favor of raising the production of electricity. This is no longer a technological choice: it is a basic Communist belief. It must be added, however, that an increased output of electricity does in time help the development of any economy launched on the path of industrialization.

The Soviet emphasis on power, steel, and machine building was an obvious and unavoidable choice for a shattered, isolated country, attempting its economic recovery on autarkic lines. It was a technological option which could be easily carried out in Russia thanks to the country’s vast deposits of coal and iron. This option is, however, so well integrated into the “Soviet method of industrialization” that each and every Communist country, whether it has coal and iron or not, attempts to follow the same path of development with the same type of emphases. The east European countries have in effect dodged for a long time any serious cooperation in the field of metallurgy and machine construction: their policy makers have for many years stressed the idea that domestic production of electricity, steel, and machine tools is absolutely necessary to each country, no matter what its natural endowment may be. Even now the division of labor among these countries in metallurgy and machine tools remains limited.

As the Soviet economy has developed, numerous new technological decisions have had to be made. To the so-called energy concept of the economy, and to the emphasis on steel and machine tools, other choices were added. In the 1950’s the idea of “chemization”—the introduction of chemical processes on a vast scale, notably in the petroleum, coal, and other industries—received a big build-up, as did the electrification idea during the 1920’s. Furthermore, as the economy has developed, the wisdom of centering planning on key intermediate products, rather than on final demand, is being increasingly questioned. But notwithstanding possible and impending changes, the Soviet method of industrialization and planning remains, for the public at large, rooted in the original technological options of the late 1920’s.