User:Greyhood/Inc

The Soviet Union became the first country that adopted planned economy, whereby production and distrubution of goods were to be centralized and directed by the government. Initially, during the Russian Civil War, Bolsheviks installed the policy of military communism, involving nationalization of industry, centralized distribution of output, coercive requisition of agricultural production, and attempts to eliminate money circulation, as well as private enterprises and free trade. One one hand, this was an utopian attempt to implement the principles of Marxist-Leninist economy in a short span of time, and on the other hand it was a policy aimed to cope with immediate necessities of war, in particular with desperate food shortages. Though Bolsheviks were able to gain enough resources for winning the Civil War, their economic policies catastrophically aggravated the hardships experienced by the population and caused severe economic collapse. In 1921 Lenin proclaimed that War Communism had been a forced and temporary measure and replaced it with the New Economic Policy (NEP), legalizing free trade and private ownership of smaller businesses. The economy subsequently recovered fairly quickly.

Following a lengthy debate among the Soviet economists and members of Politburo over the course of economic development, by 1928-1929, upon gaining the upper hand in the power struggle, Joseph Stalin had abandoned the NEP and pushed for full central planning, starting forced collectivization of agriculture and enacting draconian labor legislation. The resources were mobilized for rapid industrialization, which greatly expanded Soviet capacity in heavy industry and capital goods during the 1930s. New industries were created from scratch, as for example, in the sectors of agriculture, aerospace and armament. Preparation for war was one of the main driving forces behind industrialization, mostly due to distrust of the outside capitalistic world. As a result, the USSR was transformed from a largely agrarian society into a great industrial power, and the basis was provided for its emergence as a superpower after recovering from the devastation of the World War II. A wide range of developed industries later constituted the Soviet industrial sector, including petroleum, steel, motor vehicles, aerospace, telecommunications, chemicals, heavy industries, electronics, food processing, lumber, mining and defense. By the early 1970s, the Soviet Union had the world's second largest industrial capacity and produced more steel, oil, pig-iron, cement and tractors than any other country.

By the early 1940s, the Soviet economy had become relatively autarkic; for most of the period up until the creation of Comecon, only a very small share of domestic products were traded internationally. After the creation of the Eastern Bloc, external trade rose rapidly. However, both enterprises and households were protected from the influence of world economy by fixed domestic prices and state monopoly on the foreign trade. Driven by needs of the industrialization, since 1930s the Soviet economy imported high-technology machinery in vast numbers. Bauxite, phosphate rock, grain and certain types of consumer manufactures eventually became other important import articles. Petroleum and petroleum products, natural gas, metals, wood, agricultural products, and a wide variety of manufactured goods were exported from the country. In the 1970s-1980s, the Soviet Union heavily relied on fossil fuel exports to earn hard currency. At the peak level in 1988, it was the largest producer and second largest exporter of crude oil, surpassed only by Saudi Arabia.

Science and technology in the Soviet Union played an important role in the economic development, however the most remarkable Soviet successes in technology, such as Sputnik in 1957 and the first man in space in 1961, typically were the military responsibility. During the arms race of the Cold War the Soviet economy became increasingly burdened by military expenditures, heavily lobbied by the powerful bureaucracy dependent on the arms industry and estimated as 12-17% of the GDP in the mid-1980s. At the same time the Soviet Union became the largest arms exporter to the Third World. Much of the Soviet resources during the Cold War were allocated in aid to the other communist countries.

Since the 1930s and until its collapse in the late 1980s, the way the Soviet economy operated had remained essentially unchanged. The economy was directed by scientific central planning, carried out by Gosplan and organized into five-year plans. The plans, however were highly aggregated and provisional, subject to ad hoc intervention by superiors. All key economic decisions were taken by the political leadership. Allocated resources and plan targets were normally denominated in rubles rather than in physical goods. Credits were discouraged, but widespread. Final allocation of output was achieved through relatively decentralized, unplanned contracting. Although in theory prices were legally set from above, in practice the actual prices were often negotiated, and informal horizontal links were pervasive.

For most of the later part of its history, the Soviet economy enjoyed very low inflation and unemployement rates. A number of basic services were free, such as education and medicine. However, heavy industry and defense were assigned higher priority than consumer goods production, which led to a number of problems. Consumer goods, in particular outside large cities, were often in short supply, of poor quality and limited choice, as under command economy consumers' preferences wielded almost no influence over production, changing demands of the population with growing money incomes couldn't be matched by supplies at rigidly fixed prices. A massive unplanned second economy existed alongside the planned one at low levels, providing some of the goods and services that the planners could not. Legalization of some elements of the decentralized economy was attempted with the reform of 1965.

Although statistics of the Soviet economy is notoriously unreliable and its growth is difficult to estimate, by most accounts it continued to expand positively until 1989-1990. During the "Golden Age of Communism" in 1950s and 1960s the Soviet economy performed with comparatively high growth rates and was catching up with the West. However, after 1970 the growth rates, while still positive, steadily declined, much more quickly and consistently than in other countries, despite rapid increase in the capital stock, surpassed only by that in Japan. In 1987 Mikhail Gorbachev pushed to reform the economy with his program of Perestroika in an attempt to revitalize it. His policies relaxed state control over enterprises, but hadn't yet allowed it to be replaced with market incentives, ultimately resulting in a sharp decline in production output. The economy, already suffering from reduced petroleum export revenues, started to collapse. Prices were still fixed, property was still largely state-owned until after the dissolution of the Soviet Union. Just prior to its collapse the Soviet economy was estimated to be the second largest in the world by GDP (PPP).