The ‘System’ Is Still the Problem

Can the Soviet Union change? Of course it can. But this answer to the question, widely discussed by “experts” on the Soviet economy, tells us nothing. It is an easy answer to a poor question.

Russian history is replete with poorly posed questions and easy answers. More than 100 years ago Alexander Herzen asked: “Who is to blame?” This question repeats and repeats; only the answer changes. Capitalists, speculators, landed peasants, imperialists, Trotskyites, Stalinists, bureaucrats and a host of others have been blamed for the problems of the day.

At the turn of the century, V. I. Lenin changed Herzen’s question to: “What is to be done?” His answer rejected peaceful change under the leadership of trade unions and resulted in violent revolution.

Revolution alone is not an answer. What was to be done after the revolution? Lenin chose to eliminate private property in the means of production and substitute state ownership. Seventy years later, Mikhail S. Gorbachev finally discovered what every peasant had discovered much earlier. The Soviet economic system works badly.

How badly? In truth, the experts know very little either about what is happening or what has happened to the Soviet economy. The reason is that probably the Soviets themselves don’t have a very clear idea of their position. A dramatic illustration of our ignorance is the gap between recent estimates of Soviet per-capita income. The CIA staff puts the average current income of a Soviet citizen at $8,300 a year. A group of other Western experts thinks that the correct number is about $3,000. The gap between these estimates is enormous--equal to the difference between the take-home income of an average American in the Depression year of 1933 and relatively prosperous 1971.

Apparently the Soviets are not much better informed. According to Soviet statistics, the growth rate of real output fell from 6% to 2% between the 1960s and the 1980s. But Abel Aganbegyan, a leading economic adviser to Soviet leader Gorbachev, recently claimed that these statistics are based on myth and error. The true decline, according to Aganbegyan, is from 5% in the 1960s to zero in the 1980s.

Soviet population grows about 1% a year, so if Aganbegyan is right, per-capita income has fallen for the past seven or eight years. Official estimates confirm that this happened last year, and some reports suggest that without sales of vodka and the higher oil prices of the 1970s, growth would have been stagnant for 20 years.

Confusion and uncertainty about the size and growth of the Soviet economy is not an accident. It reflects one of their basic problems. To compute total output or income, economists and accountants must have some way of adding together the value of thousands of different products produced each year.

The usual way in our economy is to use prices as weights. A product that costs twice as much as another counts for twice as much. But in the Soviet Union, prices bear no relation to value. About 500,000 prices are set by bureaucrats in Moscow. Many of the prices bear little relation to market prices in the West or to costs of production in the Soviet Union or to the way Soviet consumers value the goods and services.

Without prices as weights, any computation of Soviet output is arbitrary. That’s one reason that our experts can use very similar data to reach very different conclusions. Add the problems of quality, waste and over-reporting of production and you begin to see why the value of Soviet output is in doubt.

We may not be able to measure total output, but we can compare specific products. Aganbegyan estimates that in 1986 there were 47 cars and 90 telephones for every 1,000 Soviet citizens. The numbers for the United States are 580 cars and 790 telephones. Even when the Soviets have more of something, more does not imply that they are better or more productive.

For example, the Soviets claim to have four times as many farm tractors as the United States, but they produce no more than 15% of U.S. agricultural output. A visitor to major Soviet cities in summer will find few of the fresh fruits and vegetables that fill U.S. supermarkets.

Enough. There is no doubt that the Soviet cupboard is not well stocked. They have recognized the problem at the highest level and have undertaken reforms.

The experts now speculate on the answers to questions such as: Will Gorbachev prevail over his supposed rival, Politburo member Yegor K. Ligachev, at the next meeting of Soviet leaders? Will the bureaucracy prevent Gorbachev from carrying out his plan? Will Gorbachev retain power long enough to reform the Soviet economy?

Individuals can make a difference. By rearranging some ministries, firing some petty and not so petty bureaucrats, changing some prices and exhorting everyone to greater efforts, Gorbachev, Ligachev or whoever, may be able to get some increases in output and some improvements in quality. Standards of living may rise.

However, the changes will not be a reform of the Soviet economy.

Again, the experts have been asking the wrong questions. The key issue for success or failure of reform is whether the Soviets will recognize and reverse Lenin’s error and permit private ownership of the means of production. As Prof. Steve Pejovich of Texas A&M; has pointed out, the problem in any economy is to introduce the proper incentives. Reshuffling the ministers, deputy ministers, section chiefs and petty officials changes nothing of lasting importance.

If the incentives remain unchanged, the system remains unchanged, for the incentive structure is a large part of “the system.” A private property system gives people incentives to use resources more efficiently. They know that the losses from waste, inefficiency and poor quality accrue to them.

Aganbegyan, in a recent book, assures us that nothing of this kind is on the agenda. Capital, land and labor will not respond to prices and profit opportunities. They will be used inefficiently, planned centrally.

Decades of socialism in Europe, Asia, Africa and Latin America have shown that the conjectures of Marx, Lenin, Mao and others are wrong. Some countries have done better than others, but there is not a single economic success story in the socialist world. Yet, some so-called experts and journalists in the West continue to look or hope for “good” socialists who will “do the right thing.”

Why do these folk never learn that it is a system failure? Perhaps that’s the most puzzling question of all.