I remember talking years ago to Richard Rosett, then dean of the Rochester Institute of Technology College of Business, about his meetings with Soviet economists. He said he would ask them how, in the absence of supply and demand, they decided what and how much to produce. He said they replied that they decided scientifically. Their economic planning was organized around the biological needs of human beings for food, clothing, shelter and so on.
In that case, Dr. Rosett asked, how did they decide how many red dresses and blue dresses to produce. Their reply was that it doesn’t matter whether dresses are red or blue. But Dr. Rosett’s question is a proxy for much else. No tiny group of central planners can grasp the needs and wants of hundreds of millions of human beings, except in very crude and general terms, and no planning mechanism has been found as effective as the market in integrating human desires with human knowledge.
There was a time, which I remember well, when things seemed otherwise. The Soviet Union launched the Sputnik in 1957, its economy was reported to be growing faster than ours, and many Americans had much the same feeling in the 1950s and 1960s as they had toward Japan in the 1980s or China and India today. Then as now I opposed any governmental or economic system that gives absolute power to an individual or a self-selected elite, but at the time I feared the Soviet system would be more effective than American capitalism in increasing and projecting military and political might.
I recently read a historical novel, or fictionalized history, entitled Red Plenty, which recreates that era well. The author, Francis Spufford, describes the efforts of idealistic reformers in the Soviet Union in the 1960s to overcome the inherent flaws of central planning and make the promises of Communism come true. He shows why their ideas seemed plausible, and also why they didn’t work out.
This story is told as a series of vignettes about characters both historical and fictional involved in the workings or the attempted reform of the Soviet economy, in a style that is sardonic, poignant and highly readable. The second chapter is told from the viewpoint of an exuberant Nikita Khrushchev, visiting the United States in 1959 and challenging the capitalist world to peaceful economic competition. The last chapter returns to Khrushchev in forced retirement in 1968, sitting in his garden and brooding on what went wrong. Spufford conveys a sense of Soviet life during that period that is so convincing I would have thought he experienced it; in fact, he is a Briton who doesn’t speak Russian.
Along the way he does an excellent job of explaining Soviet and Western economics in both theory and practice. The flaw of Soviet economics is that no system of central planning has been found that can substitute for supply and demand as a means of coordinating an economy. In a market economy, the price of a product reflects everything that is known about its value and scarcity, without the need for omniscient masterminds at the top.
The book’s hero, to the extent that there is one, is Leonid Vitalevich Kantorovich, the only Soviet winner of the Nobel Memorial Price for Economics. Kantorovich hoped that sufficiently sophisticated mathematics and computer processing would allow the Soviet planners to optimize their system, and accomplish what a market system would do without creating a wealthy capitalist class. His theories inspired Khrushchev to create the city of Academgorodok, where the best minds of the Soviet Union were allowed to work in relative freedom to create a better future. Some of the scenes are set in Academgorodok; others depict the nitty-gritty of making the Soviet system work in practice.
Francis Spufford
Kantorovich’s reforms were introduced in a partial and self-defeating way. In one chapter, the managers of a textile mill realize that with, with their obsolete machinery, they won’t achieve their production quota, and their careers will thereby be ruined. Risking being shot as saboteurs, they fake an accident that destroys their machine, expecting they will get a newer, more advanced model as a replacement that will enable them to meet their target. Instead, they get a copy of the old obsolete machine. The new machine is both better and cheaper to make, but the machine tool manufacturers keep on with the old machines. Under the new plan, the manufacturer is expected to make a profit, and the profit is higher on the old machines. Why? The price was based on the machine’s weight.
Spufford’s account makes the resistance and sabotage of the reforms seem inevitable. Managers were asked to give up control to an impersonal system, but they still had responsibility for results. The temptation to do what W. Edwards Deming called “tinkering” was irresistible. In fact, the whole story reminds me, in many ways, of American industry’s partial adoption and then abandonment of Deming’s total quality management system.
Spufford identifies the moment when capitalism defeated Communism. It was when Soviet economic planners decided to forego development of a new generation of computers, and instead reverse-engineer the IBM 360. (The Soviet military had their own advanced computers, but these were never shared with the civilian economy.) By so doing, the economic planners in effect admitted that the Soviet Union would always be a second-rate industrial power and the dream of a socialist paradise was an illusion.
The Soviet Union later made an economic comeback not as an industrial power, but as an oil and gas exporter. As Spufford notes, some of the discoveries in western Siberia were guided by Academgorodok geologists.
The book’s end notes explain what in the book is fiction, what is the result of research and the sources for the research. It is almost as interesting as the main body of the book. There is no U.S. edition of Red Plenty; I ordered my copy from a distributor of British books.
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Click on the following links for British reviews of Red Plenty.
Charlotte Hobson in The Telegraph
Michael Burleigh in The Telegraph
Paul Cockshott in 21st Century Socialism
Peter Taaffe in Socialist World
Adam Roberts in Strange Horizons
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The reforms later attempted by Mikhail Gorbachev were not a revival of Kantorovich’s ideas. Kantorvich sought to optimize the Soviet economy while leaving the structure of Soviet power intact; Gorbachev sought to democratize Soviet government while leaving central economic planning intact. Then came Yeltsin and radical free-market “shock therapy,” which didn’t work either, and the Putin regime, which seems to be trying to put things back they way they were during Czarist days.
When I was an undergraduate at the University of Wisconsin more than 50 years ago, my Russian history teacher, Professor Mikhail B. Petrovich, said that what the Bolsheviks forgot or ignored was that the capitalist system is a system, and that when you smash a system, however oppressive, the result is not a better system, but chaos and suffering. The same is true the other way around. The Communist system, however oppressive, was a system, and smashing it didn’t automatically make things better.
Tags: Communism, Failure of Communism, Francis Spufford, Khrushchev era, Leonid Kantorovich, Red Plenty, Soviet economic reform, Soviet Union
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