The Turning Point, by Nikolai Shmelev and Vladimir Popov, New York: Doubleday, 336 pages, $22.95
Marked by penetrating and lively analysis, The Turning Point is a powerful account of the failure of central planning in the Soviet Union written by two top Soviet economists. While it is the most scathing condemnation of Soviet central planning to emerge from the Soviet Union to date, the book falls short in prescribing "market socialism" as the solution. Even in the age of glasnost, the authors are unwilling to wholeheartedly embrace real market solutions.
Shmelev and Popov show that the planned economy does not work and is, in fact, unplanned. Setting workable investment and output targets for millions of goods and services is impossible. In practice, planning has meant an economy of shortages and inventory buildups, since planners do not have the information to make the billions of decisions made by individuals in a market economy. The plan must be constantly changed in an ongoing effort to adjust to reality.
Producers work to fulfill gross output quotas, targets denominated in number, weight, or volume. Normal market relations between consumer and producer do not exist, since the consumer does not influence the production process. The authors say that the relationship between supply and demand "is not totally severed (otherwise no economy could exist), but in our economy these ties acquire an ethereal character, not unlike the connection between the Cheshire Cat and his body."
Shmelev and Popov denounce the command economy in no uncertain terms: "No matter how you approach the problem, the conclusion is the same: by the time of the [second world] war we could have had a far more powerful economy than we actually had, and without enduring the incredible pressures and those heavy losses.…All the economic and human casualties must be ascribed to the administered economic system, with its extreme wastefulness and bureaucracy." They conclude that the Stalinist system made the country "virtually a 'forced labor camp economy'" as "nearly four-fifths of the entire economy was based on outright non-economic coercion."
Shmelev and Popov's description of the Soviet economy exposes mainstream Western assessments as little more than fairy tales. They devote a chapter of their book to the falsification and distortion of statistical data in the Soviet Union, which they contend still occurs today. The revelation that "for three decades, from the end of the 1920s through the end of the 1950s, statistical distortions were so great that even the ordinal numbers were altered," implies that even assessments by conservative Western experts skeptical of Soviet success, such as the late G. Warren Nutter, give an optimistic rendition of Soviet economic performance.
The Turning Point also strikes a body blow to Western demographers, who have long covered up the human cost of Stalin's rule by assuming that the Soviet population grew by approximately 50 million people between 1930 and 1950—a period of famine, collectivization, deportations, purges, and war. Shmelev and Popov report that "it is indisputable that over the course of two decades, the population within the borders of the U.S.S.R. did not increase." The authors estimate the Soviet population to have been 160 million in the early 1930s, a figure at which they say it remained in 1950! Yet last year the CIA estimated the Soviet population at 288.7 million. If these Soviet economists are right, our experts have dramatically overestimated the size of the Soviet population.
Shmelev and Popov find inspiration in Lenin's New Economic Policy, which the Soviet leader implemented in 1921 only after the country was threatened with imminent collapse due to the complete disorganization of production wrought by efforts to establish a communist economy. The NEP allowed market relations once again to function, leading to a rapid recovery. Such a policy was not to be permanent, as Lenin himself avowed, but would allow the Bolsheviks to regroup their forces and impose communism upon an unwilling population at a later date. The leadership used the time afforded by the NEP to concentrate efforts on building an administrative apparatus powerful enough to launch such an endeavor.
Unwilling or unable to acknowledge the fact that the NEP was a return to capitalist production relations, the authors present thin arguments that the NEP represented Lenin's chosen direction for the Soviet economy. Intellectual contortions are employed to persuade the reader that the policy was not a deviation from socialism in Lenin's mind.
While admiring the economic successes of the NEP years, Shmelev and Popov denounce the political system set up by Lenin as "a clear step backward…not only compared with 1917, when the democratization of the entire public life reached a peak, but even compared to the pre-Revolutionary period in many areas—compared to those democratic concessions obtained from the tsar during the Revolutions from 1905 to 1907." They stop barely short of declaring the Soviet revolution to be a terrible mistake.
The authors dismiss all reforms after the NEP as cosmetic measures that left intact the system of production to meet gross output targets. Gorbachev's perestroika is no exception: "No matter what has been said, the most important thing for an enterprise is still the planned volume of gross output. Either gross output requirements will crush the new economic mechanism or the new mechanism will crush the notion of gross output."
From hard experience, the authors learned that "it is as impermissible and dangerous to violate economic laws as it was to violate the law of the nuclear reactor in Chernobyl." They are quick to describe the result of ignoring economic laws: "In the name of the plan, the best cattle were slaughtered. Forests were cleared without reseeding; the air, rivers, and reservoirs have been polluted; the soil has been ruined." Among numerous examples of waste, they cite the plight of agricultural collectives that are forced to send in functioning trucks to the repair shop so that the shop can meet its quota for repairs, and explain how good zinc is turned into scrap metal in order to fulfill enterprises' plans. The authors compare the inherent wastefulness of planning to "burning down the house to fry an egg."
Time is running out for the Soviet Union. The contradictions of the socialist state are glaring. The Soviet leadership has squandered years on unworkable, superficial economic reforms and limited political reforms that dangerously give the people a voice without establishing responsive institutions. The country is physically dying. Production to meet plan targets regardless of waste or concern for the environment has destroyed nonrenewable resources, made drinking water throughout much of the country undrinkable, and poisoned the air to the extent that Soviet officials talk about the "irreversible degradation of generations." Shortages of basic commodities are endemic.
Soviet populations are coming to see secession from the union as a life-or-death matter. Under such circumstances, only the quick establishment of a market economy and a multiparty political system will save the country from collapse. Already, Azerbaijan is fighting to secede from the union, and Lithuania's Communist Party has declared itself independent. Other republics will soon follow.
Yet prospects for the necessary reforms are dim. After five years of perestroika, the Soviet leadership has returned to planning, a system that the authors say "is less like the twentieth century than the Middle Ages: a barter economy, labor rent, a corvée system." The authors warn that the command economy will "self-destruct." In fact, what we are witnessing today is the self-destruction of the command economy, along with the reputations of the Western academics who found success in central economic planning.
Former Assistant Treasury Secretary Paul Craig Roberts is William E. Simon Fellow in Political Economy at the Center for Strategic & International Studies in Washington, D.C., and a columnist for Business Week and the Scripps Howard News Service.