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Soviet Economy: Truth and Myth

Boris V. Sokolov

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To cite this article: Boris V. Sokolov (2014) Soviet Economy: Truth and Myth , The Journal of
Slavic Military Studies, 27:4, 653-660, DOI: 10.1080/13518046.2014.963436

To link to this article: http://dx.doi.org/10.1080/13518046.2014.963436

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Journal of Slavic Military Studies, 27:653660, 2014
Copyright Taylor & Francis Group, LLC
ISSN: 1351-8046 print/1556-3006 online
DOI: 10.1080/13518046.2014.963436

Soviet Economy: Truth and Myth1

BORIS V. SOKOLOV

The author proves that the Soviet economy in the middle of 80s was
overestimated as many as 4 times by the Soviet official statistics
due to pripiskideliberately overstated data on the produced goods
and services and maximally overestimating the cost of production
by using both the most costly raw materials and equipment and
an increased number of intermediate operations, each of which is
produced in a separate enterprise. All such things cause a dramatic
increase in the gross cost of production at the expense of double
accounting, but without any increase in the physical volume of
output or the improvement of its consumer qualities. Such double
accounting is called as imaginary value. The author estimates the
real Soviet GNP as only one sixth of the American one in the mid-
dle of 80s. And the Soviet Military expenditures constituted about
42 percent of GNP. Imaginary value was a very important means
of distribution and re-distribution of goods in the Soviet planned
economy.

1
First published in Russian in Literaturnyi Kirgizstan [Literary Kirghizstan] 5 (1989) under the title
Sovetskaia ekonomika: Pravda i mif [The Soviet Economy: Truth and Myth].
Boris V. Sokolov was born in 1957 in Moscow. He graduated the Geographic Department
of the Moscow State University as an Economic Geographer. He has a Ph.D. in History, is
Doctor habilitatus in Philology, and member of the Russian PEN-Centre. In September 2008 he
resigned as Professor of Social Anthropology at Russian State Social University (Moscow)
under demand of President Medvedevs Administration after publishing an article about the
Russian-Georgian War. He is the author of 90 books, including some collections of works on
the history of World War II, a book about the losses in the Second World War and the losses
of Russia in the 20th century, and biographies of Mikhail Bulgakov, Stalin, Marshal Zhukov,
Rokossovskij, Budennyj, General Baron Petr Vrangel, Beria, Tukhachevskij, Leonid Brezhnev,
Molotov, etc. The books have been translated into English, Polish, Japanese, Serbian, Estonian,
and Latvian.
Address correspondence to Boris V. Sokolov, ul. Katukova 25, Flat 267, Moscow, 123181,
Russian Federation. E-mail: bvsokolov@yandex.ru

653
654 B. V. Sokolov

Weve become so accustomed to the statement that the USSR ranges second
in Gross National Product after the USA, which was also repeated recently
in the published yearbook SSSR v tsifrakh: 1987 [USSR in Figures: 1987],2
that for a long time we havent pondered the substance of such a statement.
After all, the gap both in the standards and quality of life between our two
countries is tremendous. This fact is evident to every Soviet citizen who has
visited the United States and supported by dry statistical data, which prove
that, for example, our per capita consumption of meat is three times lower
than in the United States.3
There is no secret that the Soviet economy is strictly centralized, albeit
such a system of centralized planning is now called state order. If you
have not fulfilled a plan, you receive no bonus, which has become an
indispensable and substantive component of wages, and now, with the
implementation of state quality control (gospriemka) sometimes even with-
out any wages, if production is sorted out. Plan targets, passed down from
high echelons of power, very often dont take into account the real resources
of enterprises. But the control figures are the law. In order to reach them,
directors and manages have resorted to pripiskideliberately overstated data
on the produced goods and services. The temptation to fulfill and even to
overfulfill a plan with a stroke of the pen is too great. There is another kind
of pripiski, one that is absolutely legal: maximally overestimating the cost of
production by using both the most costly raw materials and equipment and
an increased number of intermediate operations, each of which is produced
in a separate enterprise. All such things cause a dramatic increase in the
gross cost of production at the expense of double accounting, but without
any increase in the physical volume of output or the improvement of its
consumer qualities.
But there are also quite material pripiski, which are literally tangible,
but the only misfortune is that they in no way influence either the standard
of living or the nations defensive capabilities, because they have no value
to consumers and accordingly have no value in the political-economic sense
of this word. These are the tractors and agricultural combines, which rust
under the open sky due to the lack of necessary spare parts and attachable
implements. They are machine tools and equipment, which are completely
out of date even before their installation and which are doomed to rust
away, or, at the best, to become scrap iron. They are steel, in which we have
held the top place in the world with respect to exports and imports for a
long time. They are footgear and clothing, which are fated to rot in storage.
They are construction sites, the work on which extends for decades, only
later to be mothballed. They are, finally, our repair services for everyday
electronics and other devices, which has become our daily concern due to

2
SSSR v tsifrakh, 1987 [USSR in Figures, 1987] (Moscow, 1988) p. 288.
3
Argumenty i fakty [Argument and Facts] 47 (1988) p. 2.
Soviet Economy 655

the extremely low quality of domestically produced refrigerators and tape


recorders, televisions and receivers. In terms of the overall volume of such
services, we also quite obviously occupy the top place in the world.
It is clear that all of the aforementioned factors strongly distort Soviet
statistics of any value indices and first of allthe indices of National Income
and Gross National Product (GNP). But statistics of the countries with mar-
ket economies, both developed and developing, have no such distortions,
because there are no phenomena that give rise to such distortions, like
pripiski and goods that are produced, but are never in fact sold in the
marketplace. The manifestation of such production is a sign of a crisis of
overproduction.
Another phenomenon influences our well-being and should be men-
tioned. It is the so-called shadow economy. Such an economy plays a very
important role in the West. It is goods and services, which are sheltered from
taxation and which are produced either by officially registered enterprises
or by underground enterprises. For example, in 1987 when the goods and
services of the shadow economy in Italy was included in its official GNP,
Italys GNP per capita index caught up with Japans, which in 1983 had been
1.6 times larger than Italys.4 Sometimes in the West the scale of the Soviet
shadow economy is considered just as significant. For example, American
economist W. G. Treml thinks that the production of the Soviet shadowed
economy constitutes 30 percent of the official Soviet GNP.5 Only one thing
can be said in response to such a statement: If only this was actually the
case, this wouldnt be so bad. At the very least, there wouldnt be such
an enormous deficit of consumer goods and services. After all, the Western
shadow economy mainly produces such goods and services that are in great
demand among the population. And if we take into account that the official
Soviet GNP, as the yearbook SSSR v tsifrakh, 1987 stated, constitutes almost
two-thirds of the American GNP, and if our shadow production constituted
almost a third of the official GNP, then our GNP should be equal to the
American one. All our people would be dressed and shod according to the
latest fashion and receive high-quality services, no worse than in the USA.
We are very far from such a sanguine reality! And our shadow economy
cannot help us because in the USSR, the shadow economy is of a plainly
parasitic nature and adds almost nothing to the public pie. Its actors cash
in on falsified records, bribes, speculation of deficit, and the drug trade.
Excepting the so-called tsekhovoki [owners of underground workshops or
factories], they produce practically nothing of value.
I will also note the tremendous gap between the USSR and the West
in the quality of goods and services. It is well known that Soviet Zhiguli
automobiles sold in the West for freely convertible currency sell for several

4
Za rubezhom [Abroad] 29 (1988) p. 11.
5
Sputnik 10 (1988) p. 46.
656 B. V. Sokolov

times less than the Japanese Toyota or the Italian Fiat, and our Volga, if
anyone would even buy one, would sell at a price close to that of scrap iron.
All the mentioned considerations have compelled me to doubt the
official data of the Soviet State Statistical Committee and to attempt inde-
pendently to compare the main economic indices of the USSR and the USA.
Making comparisons between these two countries is an old tradition of the
Soviet economic science. The two countries have almost the same popu-
lation (in 1983 the Soviet population was only 1.16 times larger than the
American one), the same spacious territories, similar climatic conditions, and
rather complex, multi-branched economies.
The National Income and GNP of the USSR and the USA may be com-
pared in principle by two methods, either by calculating American indices
according to Soviet norms and costs in rubles, or by calculating Soviet
indices, but in dollars. The first method should be rejected, because the
American economy has no falsified records (though individual businesses
infrequently do) nor any imaginary values. Nobody in the USA wants to
overstate the value of goods and services through the falsification of records
(such an action may only increase the sum of taxation). That is why it is
impossible to calculate correctly American National Income in rubles. Only
the second method may be used. Calculation by this method automatically
excludes from Soviet indices all pripiski and imaginaries. Only the American
shadow economy remains outside our calculations (in the USA it is formed
by the processcontrary to the Soviet pripiskiof sheltering produced pro-
duction and earnings from taxation, rather than overstating them publicly).
But, as was shown previously, the American shadow economy significantly
surpasses the Soviet one in the volume of output. Thus, my calculation may
somewhat exaggerate the real correlation of the two indices in favor of the
USSR but cannot at all in favor of the USA.
A group of scholars of the Institute of the USA and Canada of the Soviet
Academy of Sciences has made a comparison of National Incomes of the
USA and the USSR. Its results were laid out in the newspaper Argumenty i
fakty (No. 47, 1988), and I have used them here. In the 1980s the share of
wages in the American National Income was stable and stayed at the level
of 60 percent. Wages constitute about 90 percent of the personal incomes
of the American people, so the share of personal incomes constitutes about
66 percent of the National Income of the USA. In the USSR in 1985 the share
of wages in National Income was 37 percent (in our country wages are prac-
tically equal to all the personal incomes of citizens). The remainder of the
National Income after subtracting out the share of personal consumption6 is
34 percent of the US National Income and 63 percent of the USSR National

6
Authors note: In Soviet times, only wages and pensions constituted the real income of Soviet
citizens, and they were the only source of expenditure for personal consumption.
Soviet Economy 657

Incomethis is the share of accumulation (capital investments and pro-


duction of the means of production) that is necessary for guaranteeing the
existing level of personal consumption and the governments military expen-
ditures. It is not necessary to prove that defense expenditures are only a
surplus burden for the national economy because neither the armed forces
nor military industry produce any material values.
In the USA, according to the estimates of scholars with the Stockholm
International Peace Research Institute (SIPRI), military expenditures in the
1980s were about 7 percent of the GNP, or taking into account that in the
USA National Income constitutes about 89 percent of GNP, about 8 percent
of National Income.7 The rest of American National Incomeapproximately
26 percentis accumulation (it may be called conditionally pure accu-
mulation, because it excludes military spending), which is necessary for
maintaining the existing level of personal consumption in the USA, which
is about 66 percent of National Income. Supposing that in the USSR the
ratio between personal consumption and conditionally pure accumulation is
approximately the same as in the USA, I have set the share of conditionally
pure accumulation in Soviet National Income at about 15 percent. Military
expenditures constitute a large part of Soviet National Incomeabout 48 per-
cent. Their share in GNP is somewhat lowerabout 42 percent, if we accept
for the USSR the same proportion between National Income and GNP as in
the USA.
Now we have, finally, a possibility to compare the Soviet and American
indices. An approximate military parity between the USSR and the USA def-
initely exists, at least from the 1970s, so the military expenditures of the
two countries may be considered as approximately equal. In that case the
total Soviet GNP constitutes only about 16 percent of the American one (per
capita, about 14 percent). Then we can try to determine which place our
country occupies in the world in such indices as total GNP and GNP per
capita.
American researchers have compared the GNP per capita of a majority
of countries of the world. Calculations were made in conditional dollars,
taking into account different purchasing ability of different currencies, as
they existed in 1983.8 GNP per capita of the USA was estimated at $14,120.
Then GNP per capita for the USSR I can estimate to be about $1,975. In that
case our country occupies the 53rd place in a group of 135 countries, after
South Korea ($2,010) and before Brazil ($1,880). As data published in The UN
Statistical Yearbook: 1983/84 prove, the situation is similar with other socio-
economic indices. For example, in average life expectancy the USSR shares
47th place with 10 other countries among 156 countries; in child mortality,
90th among 200; in quantity of telephones per 1,000 residents, 66th among

7
The 1987 SIPRI Annual (Oxford, 1987) pp. 173179.
8
Report of the World Bank on Global Development (Washington, DC, 1988).
658 B. V. Sokolov

147; and in cars per capita, 74th among 139 (in this last index the USA figure
is 13 times greater than that of the USSR).
Strictly speaking, the number of cars per capita reflects the populations
standards of living, but not general economic indices. However, the Soviet
standards of living are relatively worse than might be expected when look-
ing at Soviet GNP per capita, because our country has to bear the exorbitant
burden of military expenditures. If we subtract the share of military expen-
ditures, which are excessive in comparison with American and world norms
of military expenditures of more than 7 percent (defense expenditures of
7 percent of GNP are something like a norm for states with large armed
forces and military industry; for the great majority of states the level of mil-
itary expenditure much lower than 7 percent of GNP), then the per capita
volume of such purified GNP is $1,285. This index more correctly reflects
the real place of our country in the global hierarchy of living standards.
With this figure, the USSR finds itself in the same group of countries with
the Congo ($1,230), Turkey ($1,240), Tunisia ($1,290), Jamaica ($1,300), and
the Dominican Republic ($1,370). So the Soviet Union is a developing coun-
try, if we take into consideration the indices of per capita GNP and living
standards. That is why the pretenses of certain leaders of these countries on
the subject of the supposed inadequate assistance of the USSR to the coun-
tries of Asia, Africa, and Latin America relative to the assistance they receive
from developed capitalist countries can hardly be considered justified.
My calculations are fully confirmed by the data produced by the famous
Soviet economist Grigorii I. Khanin.9 He has attempted to purge our eco-
nomic indices of the influence of inflation and has determined that between
1928 and 1987, the Soviet National Income increased 6.9 times (according
to the State Statistical Committees calculations, 89.5 times), while over the
same period of time the National Income of the USA increased by 6.1 times,
the United Kingdoms by 3.8 times, and Frances by 4.6 times. Meanwhile,
in 1893 the industrial output of the USA, the UK, France, and Russia corre-
lated respectively to 5.0 to 2.2 to 1.5 to 1.0.10 Up until 1913 there were no
serious changes in the correlation of the main economic indices of Russia
and the worlds industrially developed powers. In 1928 the USSR achieved
the level of 1913 in its main economic indices, including National Income.
The correlation of National Incomes of the USA, the UK, France, and the
USSR was respectively 7.0 to 2.2 to 1.4 to 1 (I repeat that, in the ideal, the
correlation between two or more countries according to GNP and National
Income would be identical). That is why in 1987, if we take into account

9
V. Seliunin and G. I. Khanin, Lukavaia tsifra: Uroki gorkie, a neobkhodimye [Misleading Figure:
Bitter, but Necessary Lessons] (Mysl, Moscow, 1988), pp. 230253. First published in the journal Novyi
mir 2 (1987); G. I. Khanin, Dinamika ekonomicheskogo razvitiia SSSR [Dynamics of the Economic
Development of the USSR] (Nauka, Novosibirsk, 1991).
10
See E. E. Gaidar and O. R. Latsis, Po karmanu li traty? [Are Expenditures out of Pocket?] Kommunist
17 (1988) pp. 2628.
Soviet Economy 659

Khahins calculations, this ratio between the USA and the USSR was 6.2:1,
between the UK and the USSR 0.9:1, and between France and the USSR 1:1.
According to my calculations, in 1983 the ratio between the American and
the Soviet GNP was 6.2:1, while the USSR, France, and the UK had practically
equivalent GNPs. As it is obvious, the results are practically identical.
The USSR occupies fifth place in the world according to GNP, falling
behind the USA, Japan, the Federal Republic of Germany, and (just a little)
France. The UK, which has almost caught up the USSR, occupies the sixth
place, and then Italy and Canada follow. The place of the USSR is almost
the same as that of Imperial Russia in 1913. The only difference is that now
Japan instead the UK occupies the place ahead of the USSR.
My estimate is almost 4 times lower than the official one, cited in the
yearbook SSSR v tsifrakh, 1987, where it was maintained that the USSR
National Income in 1987 amounted to 64 percent of the US National Income.
That means that imaginary value, including pripiski, distorts Soviet eco-
nomic data by almost the same amount and inflates them. Taking into
account this fact, we should also estimate the size of our budget deficit.
As Egor Gaidar and Otto Latsis showed, our budget deficit is about 11 per-
cent of the official GNP.11 But taking into consideration the overstatement of
the Soviet GNP, the real deficit may reach 4445 percent of the real GNP.
Yet world economic scientists believe that any budget deficit equivalent to
810 percent of GNP is critical. At that point, galloping inflation begins, and
it cannot be regulated. The tremendous size of the Soviet budget deficit
clearly indicates that with the introduction of any sort of large-scale mar-
ket setting of prices into the Soviet economy, a real inflation catastrophe
awaits us (annual price increases by 1,000 percent or more), and this would
lead to unpredictable social, economic, and political consequences. Today
cooperative prices are sometimes 10 times higher than the state ones. They
demonstrate our inflation potential.
A realistic view of the genuine position of our country in the world
economic hierarchy dictates some urgent measures. A rapid transition from
centralized planning to a market economy is impossible due to the aforemen-
tioned reasons. The only way out today is a sharp and unilateral reduction
in military spending and a most rapid conversion of the bulk of the military
industry and the military-oriented research institutes to civilian aims. Defense
expenditures should guarantee our country the possibility of the assured
elimination of an enemy by a retaliatory nuclear strike. Simultaneously,
the majority of our enterprises should be converted into joint stock com-
panies, which would allow the mobilization of both peoples savings and
foreign investments for the aims of economic development. Private prop-
erty should be allowed in the service sector and small industrial enterprises.

11
Ibid.
660 B. V. Sokolov

Such a measure helps to regulate the sectors of both cooperative-based and


individual labor.
In agriculture, private ownership of the land should be expanded under
certain conditions, and the initial share of land should be sold at a symbolic
price. Such a measure will transform the peasant into a real owner of the
land. Leasing the land, even long termed or termless, will not give a sense
of ownership to the peasants. Remember that termless leases once existed
in our country, but only for 11 yearsfrom 1918 to 1929. Its sad fate would
put anyone on guard. That is why today any renter would strive to obtain
the maximal amount of income from the land in the shortest possible terms.
Indeed, such a practice will inevitably cause the exhaustion of the soil and
deterioration of the countrys environment, which even today is not very
good. Moreover, now renters are strongly bound with the collective farms,
state farms, and local soviet organs, which can practically dictate their own
terms.
It shouldnt be thought that the transfer of the land into private hands
will lead to the liquidation of the collective farms. This process is slow, lasting
for decades, like that of the process of transitioning into joint stock compa-
nies. The collective farms, which are capable of surviving, will undoubtedly
endure. Moreover, few of the peasants today are willing to take land under
their private ownership. Indeed, those peasants who take ownership of land
would inevitably form some sort of cooperative; the Western experience
proves that. The fact that these processes will be prolonged in time protects
us from stormy inflation, and the conversion of military industry may smooth
both the budget and goods deficit. Naturally, changes in the economy will
be positive and irreversible only upon the condition of a full and consistent
democratization of political life. Only then can we in the course of several
decades (and not in just 510 years, as some think) catch up to developed
countries.
Note: At the end of the 20th century and at the beginning of the 21 cen-
tury, in connection with the collapse of Enron, Worldcom, and a number of
other American companies, which employed computers and other advanced
technology, one can speak about the appearance of a new type of imagi-
nary value now in the purely market economies. In this case, however, the
company exaggerates not its volume of output, but its earnings and prof-
its, in order to artificially increase the value of its activities and thereby to
attract more capital. However, this can hardly influence national GNP in any
significant way, but it can possibly distort its structure.

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