Table Of ContentE N C Y C L O P E D I A O F
RUSSIAN HISTORY
EDITOR IN CHIEF
James R. Millar
George Washington University
SENIOR ASSOCIATE EDITOR
Ann E. Robertson
George Washington University
ASSOCIATE EDITORS
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Grinnell College
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University of North Carolina
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University of California, Berkeley
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University of Chicago
ADVISORY BOARD
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University of Illinois, Urbana-Champaign
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Brandeis University
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Colby College
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University of Miami
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U.S. Army Command and Staff College
Boris N. Mironov
Russian Academy of Science
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University of California, Berkeley
EDITORIAL
BOARD
V O L U M E 2 : E - L
JAMES R. MILLAR, EDITOR IN CHIEF
E N C Y C L O P E D I A O F
RUSSIAN HISTORY
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James R. Millar
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1. Russia—History—Encyclopedias. 2. Soviet
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EARLY RUSSIA See KIEVAN RUS; MUSCOVY; NOV-
GOROD THE GREAT.
ECONOMIC GROWTH, EXTENSIVE
In the quantitative analysis of aggregate economic
development, modern economists commonly dis-
tinguish extensive from intensive growth. Exten-
sive economic growth comes from the expansion
of ordinary inputs of labor, reproducible capital
(i.e., machines and livestock) and natural resources.
Intensive growth, by contrast, involves increased
effectiveness, quality, or efficiency of these inputs—
usually measured as a growth of total factor pro-
ductivity.
The early development of the USSR was pri-
marily of the extensive sort. Increased application
of labor inputs came from reduced unemployment,
use of women previously engaged within the
household, diminished leisure (e.g., communist
sabbaticals or subotniki), and forced or prison la-
bor. Increased capital investments were a result of
forced savings of the population, taxes and com-
pulsory loans, deferred consumption, and a small
and varying amount of foreign investment in the
country. Natural resources were expanded by new
mines and arable acreage, most notably the “vir-
gin lands” opened up in semiarid zones of Kaza-
khstan during the 1950s. But shifting resources
from the backward peasant sector to modern in-
dustry, as well as to borrowed technology, also ac-
counted for some intensive growth.
During the 1950s total growth of gross do-
mestic product (GDP) was an impressive 5.7 per-
cent annually, adjusted for inflation, of which
approximately 3.3 percent came from increased in-
puts and only about 2.4 percent from increased
productivity. Growth rates declined to 5.1 percent
during the 1960s, 3.2 percent during the 1970s,
and a mere 1.9 percent during the 1980s. Less than
1 percent of these growth rates came from inten-
sive sources. The increased share of extensive
sources meant that growth could not be sustained
for several reasons. Population growth was slow-
ing in Russia. Most of the increased labor supplies
came from the less educated populations of Soviet
Central Asia, where industrial productivity was
considerably lower than in the traditional heart-
land of Russia and Ukraine. These Muslim popu-
lations did not move readily to, or were not
welcome in, the most productive areas of the USSR,
E
425
such as the Baltic states. Some economists, includ-
ing Martin Weitzman and Stanley Fischer, attrib-
uted the slowdown to the difficulty of substituting
new investments for labor, as well. Depletion of oil
and ore fields also played a role in reduced growth.
For systemic reasons, the Soviet command
economy could not develop the new goods, higher
quality, and innovative processes that increasingly
characterized the economies of the developed West.
Nor could it keep up with the newly industrializ-
ing economies of southeast Asia, which by the
1980s displayed higher growth rates, predomi-
nantly from intensive sources.
See also: ECONOMIC GROWTH, IMPERIAL; ECONOMIC
GROWTH, INTENSIVE; ECONOMIC GROWTH, SOVIET
BIBLIOGRAPHY
Gregory, Paul R., and Stuart, Robert C. (1986). Soviet Eco-
nomic Structure and Performance, 3rd rev. ed. New
York: Harper & Row.
Gregory, Paul R., and Stuart, Robert C. (1999). Compar-
ative Economics Systems, 6th ed. Boston: Houghton
Mifflin.
MARTIN C. SPECHLER
ECONOMIC GROWTH, IMPERIAL
The economic development of the Russian Empire
can be traced back to the reign of Peter the Great
(1682–1725), who was determined to industrialize
Russia by borrowing contemporary technology
from Western Europe and attracting foreign spe-
cialists. While military considerations played an
important role in this drive, they combined with
vast natural resources and large labor pool to de-
velop an increasingly modern industrial sector by
eighteenth-century standards. The less progressive
policies of Peter’s successors lead to a growing gap
between Russia and its industrializing European
competitors that became evident in the nineteenth
century. Peter’s most significant policy was his
entrenchment of serfdom in the village, which
was abolished in 1861. After the Crimean War
(1854–1856), especially during the tenure of
the Minister of Finance Count Sergei Witte
(1892–1903), recognition of the dangers of the eco-
nomic gap bolstered the accelerated industriali-
zation of the Russian Empire. Large government
investments in the rail network development ex-
panded the transportation network from 2,000
kilometers in 1861 to more than 70,000 kilome-
ters in 1913. This development helped to open up
the iron and coal resources of the Southern regions
(Ukraine) and facilitated the marketing of wheat,
the major export commodity of the Russian em-
pire. A vibrant textile industry grew in Moscow,
and metalworking blossomed in St. Petersburg.
Government policy favored the influx of for-
eign capital, primarily from England, France, and
Belgium, which were attracted by Russia’s vast eco-
nomic potential. The stabilized ruble exchange rate
allowed Russia to join the international gold stan-
dard in 1897. The expansion of domestic heavy in-
dustries was promoted by government protectionist
policies such as high tariffs, profit guarantees, tax
reductions and exemptions, and government orders
at high prices to insure domestic demand. The min-
istry of finance was the major agent in this strat-
egy. Bureaucratic intervention into economic matters
and bribery were among the numerous limitations
on the development of a modern entrepreneurial
class in Russia. More recent data suggest that the
state was not as pervasive in Russian economic life
as was originally thought. Budgetary subsidies
were modest, and tariffs and indirect taxes were
levied strictly for revenue purposes and played lit-
tle role in the industrial policy. Russia had active
commodity markets and was active in world mar-
kets. The state did not engage in economic planning,
and both product and factor prices were set by mar-
kets. The creation of industrial trusts and syndi-
cates in the early years of the twentieth century
implied the existence of some monopolies in Russia.
The success of Russian industrialization before
1917 was evident, but agricultural progress was
more modest (agriculture continued to account for
more than half the national product). During the
industrialization era, the share of agriculture fell
from 58 percent in 1885 to 51 percent in 1913.
Russian agriculture was characterized by feudal el-
ements and serfdom that provided few incentives
for investment, productivity improvements, or bet-
ter management. Russian serfs had to work the
landlords’ land (called barshchina) or make in–kind
or monetary payments from their crops (obrok).
Peasant land prior to 1861 was held communally
and was periodically redistributed. Agricultural re-
forms were modest or too late to prevent what
many contemporary observers feel was a deepen-
ing agrarian crisis. The Emancipation Act of 1861
provided the peasants with juridical freedom and
transferred to them about half the landholdings of
the landed aristocracy. However, peasants had to
E C O N O M I C
G R O W T H ,
I M P E R I A L
426
E N C Y C L O P E D I A O F R U S S I A N H I S T O R Y
“redeem” (buy) their allotted plots of land. The size
of land allotments was very small, and backward,
unproductive communal agriculture remained the
main organizational form in villages. While the
production and marketing of grain increased sub-
stantially after the Emancipation Act of 1861, the
primary objective of the Russian emancipation was
not to create a modern agriculture, but to prevent
revolts, preserve the aristocracy, and retain state
control of agriculture.
Many observers feel that the agrarian crisis was
one of the causes of the Revolution of 1905, which
necessitated further reforms by the tsarist govern-
ment. The reforms introduced in 1906 and 1910
by Peter Stolypin allowed the peasants to own land
and cultivate it in consolidated plots rather than in
small, frequently separated strips. The Stolypin re-
forms weakened communal agriculture and created
the base for a class of small peasant proprietors.
These reforms were considered long overdue, and
they had a positive effect on the development of
agriculture. In spite of persistent regional differ-
ences, peasant living standards rose, and produc-
tivity and per capita output increased. Overall,
agricultural growth during the post–emancipation
period was much like that of Western Europe. In
spite of the late removal of serfdom, there is evi-
dence of significant peasant mobility, and the com-
pletion of an extensive rail network greatly fa-
cilitated the marketing of grain. Regional price
dispersion fell as transportation costs were lowered,
and agricultural marketing and land rents were, in
fact, dictated by normal market principles.
Despite scholarly controversy concerning the
consequences of active government intervention in
economy, the late tsarist era after 1880 is charac-
terized by the significant acceleration of the output
growth rate. Between the 1860s and 1880s the av-
erage annual rate of growth of net national prod-
uct was 1.8 percent, while for the period thereafter,
up to the 1909–1913 period, the rate of economic
growth was 3.3 percent. At the same time, Russia
experienced significant population growth, which
put the Russian empire in the group of poorer West
European countries in per capita terms. Russian
economic growth was largely the consequence of
the relatively rapid rate of growth of population
(1.6% from 1885 to 1913) and labor force (1.7%
from 1885 to 1913), pointing to the extensive char-
acter of the growth. Less reliable data on the tsarist
capital stock suggests that roughly two–thirds of
the growth of Russian output was accounted for
by the growth of conventional labor and capital in-
puts. With respect to structural change, the decline
in the shares of agriculture (from 58% in 1885 to
51% in 1913) and expansion of industry, con-
struction, and transportation (from 23% in 1885
to 32% in 1913) suggests that the Russian econ-
omy had indeed embarked on a path of modern
economic growth.
Russia’s economic power was concentrated in
agriculture. In 1861 Russia produced more grain
than any other country and was surpassed only
by the United States in 1913 (123,000 versus
146,000 metric tons). On a per capita basis, how-
ever, Russia ranked well behind major grain pro-
ducers (the United States and Germany) and was
close to the level of such countries as France and
Austria–Hungary. Russia’s industrial base was
even weaker. In 1861 the country was a minor
producer of essential industrial commodities such
as coal, iron, and steel, and still lagged behind the
major industrial powers in 1913. Russia began its
modern era with a per capita output that was 50
percent that of France and Germany and 15 per-
cent that of England and the United States. On per
capita basis, in 1913 Russia was a poor European
country ranking well below Spain, Italy, and Aus-
tria–Hungary. The relative backwardness of the
Russian empire is explained by rapid population
growth and slow output growth in the years be-
fore the 1880s. Russia’s output growth figures do
not paint a picture of a collapsing economy, but
rather of an economy that was either catching up
or holding its own with the most industrialized
countries of the era.
Data on human capital development (in par-
ticular, literacy data) suggest that Russia was still
a socially backward nation at the turn of the cen-
tury. In 1897 the illiteracy rate was 72 percent; in
1913 it was still as high as 60 percent, with ur-
ban literacy almost three times that of rural liter-
acy. By contrast, in 1900 the illiteracy rate in the
United States was 11 percent. Despite this fact, af-
ter 1880 investment in primary education rose, and
primary school enrollment increased considerably.
While Russia’s birth and death rates began to de-
cline after 1889, birth rates were still at premod-
ern levels at the time of the 1917 revolution.
Foreign investment played a substantial role in
the industrialization of Russia, since the domestic
production of capital equipment was limited. In ad-
dition to importing technology and equipment, the
Russian economy was also aided by the receipt of
foreign savings to finance Russian capital forma-
tion along with domestic savings. Russia was a
E C O N O M I C
G R O W T H ,
I M P E R I A L
427
E N C Y C L O P E D I A O F R U S S I A N H I S T O R Y
large debtor country during the period from 1880
to 1913, receiving significant capital influx from
France, England, and Belgium. It accounted for 15
percent of world international debt by 1913. For-
eign capital accounted for nearly 40 percent of
Russian industrial investment, 15 to 20 percent of
total investment, and about 2 percent of Russian
output at the end of tsarist era. The Russian em-
pire was more dependent upon foreign capital in
both magnitude and duration than either the
United States or Japan during their periods of de-
pendence. The large foreign investments in Russia
were a sign of confidence in its potential and re-
sponded to traditional signals such as profits suf-
ficient to offset risk.
See also: AGRICULTURE; BARSHCHINA; INDUSTRIALIZA-
TION; OBROK; PEASANT ECONOMY; PETER I; SERFDOM
BIBLIOGRAPHY
Gatrell, Peter. (1986). The Tsarist Economy, 1850–1917.
New York: St. Martin’s Press.
Gregory, Paul R. (1994). Before Command: An Economic
History of Russia from Emancipation to the First Five
Year Plan. Princeton, NJ: Princeton University Press.
PAUL R. GREGORY
ECONOMIC GROWTH, INTENSIVE
Increases in aggregate economic activity, or
growth, may be generated by adding more labor
and capital or by improving skills and technology.
Development economists call the latter “intensive
growth” because labor and capital work harder.
Growth is driven by enhanced productivity (higher
output per unit of input) rather than augmented
factor supplies. Theory predicts that all growth
in a steady-state, long-run equilibrium will be
attributable to technological progress (intensive
growth). Developing nations may initially grow
faster than this “golden mean” rate, benefiting both
from rapid capital accumulation (capital deepen-
ing) and technological catch-up, but must converge
to the golden mean thereafter. During the 1970s
many Marxist economists hypothesized that so-
cialist economies were not bound by these neo-
classical principles. They forecasted that extensive
growth (increased factor supply) would be replaced
by socialist–intensive methods ensuring superior
performance, but they were mistaken: Growth fell
below zero in 1989, heralding the collapse of the
Soviet Union two years later.
See also: ECONOMIC GROWTH, EXTENSIVE; ECONOMIC
GROWTH, SOVIET
BIBLIOGRAPHY
Abramowitz, M. (1986). “Catching Up, Forging Ahead,
and Falling Behind.” Journal of Economic History 46:
385–406.
Domar, Evsei. (1957). Essays in the Theory of Economic
Growth. New York: Oxford University Press.
Krugman, P. (1994). “The Myth of Asia’s Miracle.” For-
eign Affairs 73:62-78.
Solow, R. (1957). “Technical Change and the Aggregate
Production Function.” Review of Economics and Sta-
tistics 39(3):312-320.
STEVEN ROSEFIELDE
ECONOMIC GROWTH, SOVIET
During the first decade of Soviet rule and up to
1929, the Soviet economy struggled to recover
from the damages of World War I, the Revolution,
and the civil war, and then to find its way through
policy zigzags of the young and inexperienced So-
viet leadership. It is commonly accepted that dur-
ing this decade of the 1920s the Soviet economy
more or less managed to regain the level of national
product of 1913, the last prewar year. In 1929 the
Soviet Union embarked upon a strategy of rapid
economic growth focused mainly on industrializa-
tion. The main institutional instrument used in or-
der to implement growth was the Five-Year Plan,
the key economic tool of the centrally planned sys-
tem.
The record of Soviet growth since 1928 and the
main factors that contributed to it are presented in
Table 1. The data reflect mostly Western estimates,
based partly on Soviet official data following ad-
justments to conform to Western definitions and
methodology as well as to accuracy. One major
methodological difference related to the national
product was that, following Marxist teaching, the
concept of Net National Product (NNP), the main
Soviet aggregate measure for national income, did
not include the value of most services, considered
nonproductive.
One of the main goals of Soviet communist
leadership was rapid economic growth that would
equal and eventually surpass the West. The pri-
E C O N O M I C
G R O W T H ,
I N T E N S I V E
428
E N C Y C L O P E D I A O F R U S S I A N H I S T O R Y
mary aim was to demonstrate the superiority of
the communist economic system and growth strat-
egy, based on the teachings of Marx and Lenin, over
capitalism. The goal was needed also in order to
build a sufficient military power base to avert the
perceived military threat of the capitalist world in
general, initially that of Nazi Germany. Indeed the
rates of growth of Soviet GNP were initially, dur-
ing the 1930s and the first Five-Year Plans, excep-
tionally high by international comparisons for that
period; this made the Soviet model a showcase for
imitation to many developing countries that be-
came independent in the aftermath of World War
II. While the Soviet growth rates were still high
during the 1950s and 1960s, they were already
matched or exceeded at that time by countries such
as Germany and Japan, as well as a number of de-
veloping countries. The decade of the 1940s, with
the devastation of World War II, witnessed stag-
nation at first and slow growth during the recon-
struction efforts later. Growth somewhat accelerated
in the aftermath of the death of Josef Stalin, but
from the 1960s onward the rates of economic
growth began to fall, declining continuously
throughout the rest of the Soviet period down to
near zero just before the dissolution of the USSR at
the end of 1991. Various efforts at economic re-
form in order to reverse this trend largely failed.
As a result, the entire postwar growth record de-
clined further by international comparisons to be-
low that of most groups of developed as well as
developing countries, especially a number of East
Asian and Latin American countries. While many
developed market economies suffered from business
cycles and oscillations in growth rates, they expe-
rienced sustained economic growth in the long run.
Per contra the fall in Soviet growth rates proved
to be terminal. Thus, although during the early
decades the Soviet economy grew fast enough in
order to catch up and narrow the gap with the de-
veloped countries, during its last decades it fell be-
hind and the gap widened. The growth record with
respect to GNP per capita, followed a similar trend
of high rates of growth initially, but declined in
later decades (Table 1). While in 1928 the Soviet
level of GDP per capita stood around 20 percent of
that of the United States, it reached about 30 per-
cent in 1990, probably the best record in terms
of comparisons with other Western economies.
Throughout the period, the share of private con-
sumption in GNP was lower than in most other
nonsocialist countries. Consumption levels did go
up significantly from very low levels during the
two decades or so following Stalin’s death. Also,
throughout most of the period, there were rela-
tively high public expenditures of education and
health services, which helped to raise the compar-
ative level of welfare and the quality of life. The
failure of the communist regime to achieve sus-
tained economic growth on a converging path with
developed countries is no doubt the most impor-
tant reason for the fall of the economy.
E C O N O M I C
G R O W T H ,
S O V I E T
429
E N C Y C L O P E D I A O F R U S S I A N H I S T O R Y
Growth, Productivity and Consumption 1928–1990
(AVERAGE ANNUAL GROWTH RATES)
Period/Category
1928–1990
1928–1940
1940–1950
1950–1960
1960–1970
1970–1980
1980–1985
1986–1990
GNP
3.2
5.8
2.2
5.2
4.9
2.5
1.8
1.3
Population
1.2
2.1
-0.8
1.8
1.3
0.9
0.9
0.9
GNP per Capita
2.0
3.6
3.0
3.3
3.6
1.6
0.9
0.4
Employment
1.4
3.9
0.3
1.6
1.8
1.4
0.7
0.1
Capital
5.7*
9.0
0.4
9.5
8.0
7.4
6.2
..
Total Factor Productivity (TFP)
0.5*
1.7
2
0.4
0.5
-1.2
-1.0
..
Consumption
3.2
3.5
3.3
5.2
5.2
3.4
1.9
2.2
Consumption per Capita
2.1
1.4
2.5
3.3
3.9
2.5
1.0
1.3
*1928–1985.
SOURCE: Ofer, 1987; Laurie Kurtzweg, “Trends in Soviet Gross National Product” in United States Congress, Joint Economic Committee.
Gorbachev’s Economic Plans, Vol. 1, Washington D.C., pp. 126–165; James Noren and Laurie Kurtzweg, “The Soviet Economy Unravels:
1985–91” in United States Congress, Joint Economic Committee. The Former Soviet Union in Transition, Vol. 1, Washington D.C. pp. 8–33,
1993; Angus Maddison. Monitoring the World Economy 1820–1992, OECD, Paris, 1995; Angus Maddison, The World Economy : A Millennial
Perspective, OECD, Paris, 2000.
5.2
Table 1.
The growth record of the Soviet Union—its ini-
tial success and eventual failure—is a joint outcome
of the selected growth strategy and the system of
central planning, including almost full state own-
ership of the means of production. The centrally
planned system was more effective at the start in
mobilizing all needed resources, and directing them
to the goals of industrialization and growth. The
system is also characterized by using commands
instead of incentives and decentralized initiatives:
emphasis on fulfillment of quantitative production
targets rather than on improvements in quality,
technology, and efficiency, routine expansion in-
stead of creativity, and rigidity and “more of the
same” instead of flexibility—a very high cost for
any change. Some of the above characteristics,
while advantageous at the start, turned out to be
obstacles when the economy developed and became
more complex. Other features, such as difficulties
in creating indigenous technological innovations,
were less harmful initially, when technology could
be transferred from abroad, but more of a hin-
drance later when more domestic efforts were
needed.
The Soviet communist growth strategy, fol-
lowing Marxian doctrine, was based on high rates
of investment and a rapid buildup of capital stock.
High rates of investment come at the expense of
lower shares of consumption, sacrificed at the be-
ginning in exchange for hopes of abundance in the
future. Central planning, state ownership, and the
dictatorship of the proletariat were the necessary
tools needed to impose such sacrifices. Next the
regime mobilized the maximum possible number
of able-bodied men and women to the labor force.
A model of growth based mostly on maximum mo-
bilization of capital and labor is called “extensive.”
The increase in output is achieved mainly through
the increase in the amounts of inputs. Under an al-
ternative “intensive” model, most of the increase in
output is achieved through improvements in the
utilization of a given amount of inputs. These in-
clude technological changes and improvements in
management, organization, and networks, termed
total factor productivity (TFP). The mobilization of
capital in the Soviet growth model assumed that
the newly installed equipment would embody also
the most advanced technology. While this was the
case to some extent during the first decade, with
heavy borrowing of technology from abroad, the
failure to generate indigenous civilian technology,
as well as the mounting inefficiencies of central
planning, diminished, eliminated, and turned neg-
ative the intensive contribution (TFP) to Soviet
growth. Only during the 1930s TFP was signifi-
cant and accounted for about 30 percent of total
growth. Soviet leaders and economists were aware
of the efficiency failure and tried to reverse it
through many reforms but to no avail.
The problem with extensive growth is that the
ability to mobilize more labor and capital is being
exhausted over time; furthermore, in both cases
early efforts to mobilize more resources backfire by
reducing their availability in the future. Labor was
mobilized from the start, by moving millions of
people from farms to the cities, by obliging all able-
bodied, especially women, to join the active labor
force, and by limiting the number of people em-
ployed in services, forcing families to self-supply
services during after-work hours. Very low wages
compelled all adult members of the family to seek
work. Table 1 illustrates that until the 1980s em-
ployment grew by a higher rate than the popula-
tion, indicating a growing rate of labor force
participation, achieving at the time one of the high-
est rates, especially for women, in the world. How-
ever, the table also shows that over time the rate
of growth of employment declined, from nearly 4
percent per year from 1928 to 1940 to almost zero
during the late 1980s. In the Soviet Union,
birthrates declined far beyond the normal rates ac-
companying modernization everywhere. This was
due to the heavy pressure on women to work out-
side the household, provide services in off-work
hours, and raise children in small, densely inhab-
ited, and poorly equipped apartments. In this way
larger labor inputs early on resulted in fewer ad-
ditions to the labor force in later years, thereby con-
tributing to declining growth. During the 1980s
employment increased at even a slower rate than
the population.
A similar process affected capital accumulation.
Because a labor force grows naturally by modest
rates, the main vehicle of growth is capital (equip-
ment and construction). This is especially true if
the rate of efficiency growth is modest or near zero,
as was the case most of the time in the USSR. It
follows that the share of investment out of the na-
tional product must increase over time in order to
assure a steady growth rate of the capital stock.
An increased share of investment leaves less for im-
provements in consumption, in the supply of so-
cial services, and for defense. Indeed the share of
(gross) investment increased in the Soviet Union to
more than 30 percent of GNP, and this kept down
the rate of growth of the capital stock and thus of
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output. Furthermore, with the earlier drying up of
increments of labor, Soviet growth was driven for
a time, still extensively, by capital alone. This in
turn forced the system to always substitute capi-
tal for labor, a difficult task by itself, more so when
no new technology is offered. The outcome was
further decline in productivity of capital and of
growth.
The early mobilization of labor and capital in-
puts at the cost of their future decline is part of a
general policy of haste by the Soviet leadership,
which was frustrated by declining growth, the in-
ability to provide for defense and other needs, and
the failure of partial reforms. In addition to the
above, there were also overuses of natural re-
sources, over-pumping of oil at the expense of
future output, neglect of maintenance of infra-
structure and of the capital stock, and imposition
of taut plans that forced producers to cut corners
and neglect longer-term considerations. Initally this
policy of haste produced some incremental growth
but at a cost of lower growth later. The results of
the policy of haste spilled over to the transition pe-
riod in the form of major obstacles for renewed
economic growth.
The heavy military burden was another sig-
nificant factor adversely affecting Soviet growth.
Early on the Soviet Union was threatened and then
attacked by Germany, and following World War II
engaged in the Cold War. Throughout the entire
period it had to match the military capabilities of
larger and more advanced economies, hence to set
aside a higher share of its output for defense. Dur-
ing the Soviet system’s last decades this share grew
to around 15 percent of GNP. This amount was
unprecedented in peacetime. The real defense bur-
den was even heavier than shown by the figures
because the defense effort forced the leaders to give
priority to defense, in both routine production and
in technological efforts, thereby disrupting civilian
production and depriving it of significant techno-
logical innovation.
Additional causes of declining growth over time
were the deterioration of work motivation and dis-
cipline, increasing corruption and illegal activities,
declining improvements in the standard of living,
and weakening legitimization of the regime. Col-
lective agriculture, the cornerstone of the commu-
nist system, became the millstone around its neck.
See also: ECONOMIC GROWTH, EXTENSIVE; ECONOMIC
GROWTH, INTENSIVE; FIVE-YEAR PLANS; INDUSTRIAL-
IZATION, RAPID; MARXISM; NET MATERIAL PRODUCT
BIBLIOGRAPHY
Bergson, Abram. (1961). The Real National Income of
Soviet Russia since 1928. Cambridge, MA: Harvard
University Press.
Domar, Evsey. (1957). “A Soviet Model of Growth.” In
Essays in the Theory of Economic Growth. New York:
Oxford University Press.
Easterly, William, and Fischer, Stanley. (1995). “The So-
viet Economic Decline: Historical and Republican
Data.” World Bank Economic Review 9(3):341–371.
Maddison, Angus. (2001). The World Economy: A Millen-
nial Perspective. Paris: Development Centre of the
Organisation for Economic Co-operation and Devel-
opment.
Nove, Alec. (1993). Economic History of the USSR,
1917–1991, rev. ed. New York: Penguin.
Ofer, Gur. (1987). “Soviet Economic Growth, 1928–1985.”
Journal of Economic Literature 25(4):1767–1833.
Ofer, Gur. (1996). “Decelerating Economic Growth under
Socialism: The Soviet Case.” In The Wealth of Nations
in the Twentieth Century: The Policies and Institutional
Determinants of Economic Development, ed. Ramon My-
ers. Stanford, CA: Hoover Institution Press.
GUR OFER
ECONOMIC REFORM COMMISSION
The State Commission on Economic Reform, chaired
by economist and vice premier Leonid Abalkin, was
created in July 1989. The first fruit of its work
was a background report written for a conference
on radical economic reform held October 30–
November 1, 1989, in Moscow. This document was
very radical by soviet standards. It argued, “We are
not talking about improving the existing economic
mechanism, nor about merely replacing its out-
dated parts. One internally consistent system must
be dismantled and replaced by another one, also in-
ternally consistent and thus incompatible with the
previous one.”
In April 1990 Abalkin and Yuri Maslyukov
(chairman of Gosplan) presented to the Presidential
Council a program for a rapid transition to the
market. This program drew attention to the costs
involved in economic reform (e.g., open inflation,
decline in production, closing of inefficient enter-
prises, fall in living standards, increased inequal-
ity). Most likely the program was rejected because
of its honesty in discussing the costs of rapid mar-
ketization. The program officially adopted in May
was substantially more conservative.
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From May to August of 1990 two teams were
working on economic reform programs, one
headed by Abalkin and one headed by Stanislav
Shatalin. The latter produced the Five-Hundred-
Day Plan. Mikhail Gorbachev did not commit him-
self to either. He asked Abel Aganbegyan to merge
the two documents. This compromise was adopted
at the Congress of People’s Deputies in December
1990. Abalkin was dissatisfied by these events and
resigned effective February 1991.
See also: GORBACHEV, MIKHAIL SERGEYEVICH
BIBLIOGRAPHY
Ellman, Michael, and Kontorovich, Vladimir, eds. (1998).
The Destruction of the Soviet Economic System: An In-
siders’ History. Armonk, NY: M. E.Sharpe.
Hough, Jerry. (1997). Democratization and Revolution in
the USSR, 1985–1991. Washington, DC: Brookings
Institution Press.
MICHAEL ELLMAN
ECONOMISM
The label applied to a group of moderate Russian
Social Democrats at the end of the nineteenth and
the beginning of the twentieth century.
An offshoot of the legal Marxists, the econo-
mist group emphasized the role of practical activ-
ity among industrial workers. According to their
theories, activism at the rank-and-file level would
lead to social change: Agitation for a ten–hour day,
limitation on fines for petty infractions, better san-
itation in the workplace, and so forth would ignite
conflict with tsarist officialdom. Class conflict
would provoke revolutionary political demands and
eventually lead to a bourgeois–liberal revolution,
which all Russian Marxists of the time thought nec-
essary before the advent of socialism. For the time
being, though, these economist Marxists were will-
ing to follow worker demands rather than impose
an explicitly socialist agenda on the laboring class.
Workers involved themselves in strikes, mutual aid
societies, and consumer and educational societies to
raise their class consciousness. Thus this faction
criticized the leading role assigned to the revolu-
tionary intelligentsia by scientific Marxists such as
Georgy Plekhanov and Pavel Axelrod.
Organized as the Union of Social Democrats
Abroad, the economists published the newspaper
Rabochaia Mysl from 1897 to 1902 in St. Peters-
burg, Berlin, and Warsaw. While mostly concerned
with worker grievances and local conditions, this
newspaper (at first produced by St. Petersburg
workers) did bring out a “Separate Supplement” in
issue 7, written by Konstantin Takhtarev, that was
critical of the more radical Marxists. The econo-
mists also sponsored the journal with a more po-
litical and theoretical character: Rabochee Delo,
published from 1899 to 1902 in Switzerland.
Economism is sometimes linked to the leading
German revisionist Marxist Eduard Bernstein
(1850–1932).
In 1899 one of the economists, Yekaterina
Kuskova, wrote a “Credo,” which came to the at-
tention of Vladimir Ilich Lenin, who penned a
protest the same year. That group’s practical and
local emphasis continued to be attacked, somewhat
unfairly, by Lenin and his supporters in Iskra
(Spark) and later in “What Is to Be Done?” (1902).
Lenin argued that the opportunist notions of
economism, as opposed to his revolutionary ac-
tivism, justified a split in Russian Social Democracy
the following year.
Several of the leading economists, for example,
Sergei Prokopovich, later became liberals, like the
more famous legal Marxist Peter Struve. Both
Prokopovich and Kuskova became anticommunists
and participated in an emergency relief committee
during the 1920–1921 famine. Soon afterward
they were arrested in the general crackdown on
Lenin’s opponents.
See also: LENIN, VLADIMIR ILICH; MARXISM
BIBLIOGRAPHY
Harding, Neil. (1977). Lenin’s Political Thought, vol. 1.
London: Macmillan.
Lenin, Vladimir Ilich. (1978). Collected Works, vol. 4.
Moscow: Progress Publishers.
MARTIN C. SPECHLER
ECONOMY, POST-SOVIET
Establishing a market economy and achieving
strong economic growth remained Russia’s pri-
mary concerns for more than a decade after the
breakup of the Soviet Union in 1991. By the mid-
dle of the decade, Russia had made considerable
progress toward creating the institutions of a mar-
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ket economy. Although the process of privatiza-
tion was flawed, a vast shift of property rights
away from the state toward individuals and the
corporate sector occurred. The main success of eco-
nomic reforms were macroeconomic stabilization
(gaining control over the inflation, relative reduc-
tion of government deficit, and so forth) as well as
initial steps toward creating a modern financial
system for allocating funds according to market
criteria. The banking system was privatized, and
both debt and equity markets emerged. There was
an effort to use primarily domestic markets to fi-
nance the government debt.
In contrast to other ex-Soviet countries in Cen-
tral Europe, Russia could not quickly overcome the
initial output decline at the beginning of market re-
forms. Russia’s economy contracted for five years
as the reformers appointed by President Boris
Yeltsin hesitated over the implementation of the ba-
sic foundations of a market economy. Russia
achieved a slight recovery in 1997 (GDP growth of
1%), but stubborn budget deficits and the country’s
poor business climate made it vulnerable when the
global financial crisis began in 1997. The August
1998 financial crisis signaled the fragility of the
Russian market economy and the difficulties poli-
cymakers encountered under imperfect market
conditions.
The crisis sent the entire banking system into
chaos. Many banks became insolvent and shut
down. Others were taken over by the government
and heavily subsidized. The crisis culminated in
August 1998 with depreciation of the ruble, a debt
default by the government, and a sharp deteriora-
tion in living standards for most of the population.
For the year 1998, GDP experienced a 5 percent de-
cline. The economy rebounded in 1999 and 2000
(GDP grew by 5.4% in 1999 and 8.3% in 2000),
primarily due to the weak ruble and a surging trade
surplus fueled by rising world oil prices. This re-
covery, along with renewed government effort in
2000 to advance lagging structural reforms, raised
business and investor confidence concerning Rus-
sia’s future prospects. GDP is expected to grow by
over 5.5 percent in 2001 and average 3–4 percent
(depending on world oil prices) from 2002 through
2005. In 2003 Russia remained heavily dependent
on exports of commodities, particularly oil, nat-
ural gas, metals, and timber, which accounted for
over 80 percent of its exports, leaving the country
vulnerable to swings in world prices. Macroeco-
nomic stability and the improved business climate
can easily deteriorate with changes in export com-
modity prices and excessive ruble appreciation. Ad-
ditionally, inflation remained high according to in-
ternational standards: From 1992 to 2000, Russia’s
average annual rate of inflation was 38 percent.
Russia’s agricultural sector remained beset by un-
certainty over land ownership rights, which dis-
couraged needed investment and restructuring. The
industrial base was increasingly dilapidated and
needed to be replaced or modernized if the country
was to achieve sustainable economic growth.
Three basic factors caused Russia’s transition
difficulties, including the absence of broad-based
political support for reform, inability to close the
gap between available public resources and gov-
ernment spending, and inability to push forward
systematically with structural reforms. Russia’s
second president, Vladimir Putin, elected in March
2000, advocated a strong state and market econ-
omy, but the success of his agenda was challenged
by his reliance on security forces and ex-KGB as-
sociates, the lack of progress on legal reform, wide-
spread corruption, and the ongoing war in
Chechnya. Despite tax reform, the black market
continued to account for a substantial share of
GDP. In addition, Putin presented balanced budgets,
enacted a flat 13 percent personal income tax, re-
placed the head of the giant Gazprom natural gas
monopoly with a personally loyal executive, and
pushed through a reform plan for the natural elec-
tricity monopoly. The fiscal burden improved. The
cabinet enacted a new program for economic re-
form in July 2000, but progress was undermined
by the lack of banking reform and the large state
presence in the economy. After the 1998 crisis,
banking services once again became concentrated in
the state-owned banks, which lend mainly to the
business sector. In 2000 state banks strengthened
their dominant role in the sector, benefiting from
special privileges such as preferential funding
sources, capital injections, and implicit state guar-
antees. Cumulative foreign direct investment since
1991 amounted to $17.6 billion by July 2001,
compared with over $350 billion in China during
the same period. A new law on foreign investments
enacted in July 1999 granted national treatment to
foreign investors except in sectors involving na-
tional security. Foreigners were allowed to estab-
lish wholly owned companies (although the
registration process can be cumbersome) and take
part in the privatization process. An ongoing con-
cern of foreign investors was property rights pro-
tection: Government intervention increased in scope
as the enforcement agencies and officials in the at-
torney general’s office attempted to re-examine pri-
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vatization outcomes. The most significant barriers
to foreign investment and sustainable economic
growth continued to be the weak rule of law, poor
infrastructure, legal uncertainty, widespread cor-
ruption and crime, capital flight, and brain drain
(skilled professionals emigrating from Russia).
See also: BLACK MARKET; FOREIGN DEBT; PUTIN, VLADIMIR
VLADIMIROVICH; RUSSIAN FEDERATION
BIBLIOGRAPHY
Gregory, Paul R., and Stuart, Robert C. (2001). Russian
and Soviet Economic Performance and Structure.
Boston, MA: Addison Wesley.
Gustafson, Thane. (1999). Capitalism Russian-style.
Cambridge, UK: Cambridge University Press.
PAUL R. GREGORY
ECONOMY, TSARIST
The economy of the Russian Empire in the early
twentieth century was a complicated hybrid of tra-
ditional peasant agriculture and modern industry.
The empire’s rapidly growing population (126 mil-
lion in 1897, nearly 170 million by 1914) was
overwhelmingly rural. Only about 15 percent of
the population lived in towns, and fewer than 10
percent worked in industry. Agriculture, the largest
sector of the economy, provided the livelihood
for 80 percent of the population and was domi-
nated by peasants, whose traditional household
economies were extremely inefficient compared to
agriculture in Western Europe or the United States.
But small islands of modern industrial capitalism,
brought into being by state policy, coexisted with
the primitive rural economy. Spurts of rapid in-
dustrialization in the 1890s and in the years before
World War I created high rates of economic growth
and increased national wealth but also set in mo-
tion destabilizing social changes. Despite its islands
of modernity, the Russian Empire lagged far behind
advanced capitalist countries like Great Britain and
Germany, and was unable to bear the economic
strains of World War I.
The country’s agricultural backwardness was
rooted in the economic and cultural consequences
of serfdom, and it was reinforced by the govern-
ment’s conservative policies before the Revolution
of 1905. The Emancipation Act of 1861, while
nominally freeing the peasantry from bondage,
sought to limit change by shoring up the village
communes. In most places the commune contin-
ued to control the amount of land allotted to each
household. Land allotments were divided into scat-
tered strips and subject to periodic redistribution
based on the number of workers in each house-
hold; and it was very difficult for individual peas-
ants to leave the commune entirely and move into
another area of the economy, although increasing
numbers worked as seasonal labor outside their vil-
lages (otkhodniki). Rapid population growth only
worsened the situation, for as the number of peas-
ants increased, the size of land allotments dimin-
ished, creating a sense of land hunger.
Most peasants lived as their ancestors had, at
or near the margin of subsistence. Agricultural pro-
ductivity was constrained by the peasantry’s lack
of capital and knowledge or inclination to use mod-
ern technology and equipment; most still sowed,
harvested, and threshed by hand, and half used a
primitive wooden plow. In 1901 a third of peas-
ant households did not have a horse. Poverty was
widespread in the countryside. Items such as meat
and vegetable oil were rarely seen on the table of a
typical peasant household.
After the 1905 revolution the government of
Peter Stolypin (minister of the interior, later pre-
mier) enacted a series of laws designed to reform
agriculture by decreasing the power of the village
communes: Individual peasant heads of households
were permitted to withdraw from the commune
and claim private ownership of their allotment
land; compulsory repartitioning of the land was
abolished and peasants could petition for consoli-
dation of their scattered strips of land into a single
holding. However, bureaucratic processes moved
slowly. When World War I began, only about one-
quarter of the peasants had secured individual
ownership of their allotment land and only 10 per-
cent had consolidated their strips. While these
changes allowed some peasants (the so-called ku-
laks) to adopt modern practices and become pros-
perous, Russian agriculture remained backward
and underemployment in the countryside remained
the rule. In increasing numbers peasants took out
passports for seasonal work, many performing un-
skilled jobs in industry.
Industrialization accelerated in the 1890s,
pushed forward by extensive state intervention un-
der the guidance of Finance Minister Sergei Witte.
He used subsidies and direct investment to stimu-
late expansion of heavy industry, imposed high
taxes and tariffs, and put Russia on the gold stan-
dard in order to win large-scale foreign investment.
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