Chapter 14 Flashcards
(54 cards)
1
Q
In Tsarist Russia, what was the state of Russia?
A
It was the least developed part of Europe
2
Q
In Tsarist Russia, when was the onset of modernisation?
A
1861
3
Q
In Tsarist Russia, what happened to the serfs?
A
Emancipation of private serfs (State serfdom (1866), Communal obligations 1906-17)
4
Q
In Tsarist Russia, what happened to the banking system?
A
Improved
5
Q
In Tsarist Russia, what happened to investment?
A
A lot of FDI
6
Q
What was the Russian insudtrial output per capita between 1861-1913?
A
1.75%
7
Q
In Tsarist Russia, what was the industrial condition?
A
Low level of industrial output
8
Q
When had Russian industrial output grow at 1.75%?
A
1861-1913
9
Q
What was the Western Europe industrial output between 1861-1913?
A
1.86%
10
Q
Who had an industrial output per capita of 1.86% between 1861-1913?
A
Europe
11
Q
What was the condition for serfs before 1861?
A
Serfs had limited rights
No permission to migrate, marry without the permission of the owner
12
Q
What happened to property rights in the middle of the 20th century?
A
Freer property rights
13
Q
What happened to serfs after 1861?
A
Gain some form of human rights, as they can now afford to buy lanf
14
Q
What was the impact of the improved banking system in Tsarist Russia?
A
More capital flows into Russia
Facilitate capital flows from Western Europe
French firms set up operations in Russia
15
Q
In Tsarist Russia, what did the gains translate into?
A
Improved standard of living for urban workers
16
Q
In 1914, what proportion of national income came from agriculture?
A
Over half
17
Q
In 1914, what proportion of employment was made up by agriculture?
A
2/3
18
Q
What was the state of the agricultural output per acre in 1914?
A
Rose but was still low by western standards
19
Q
When were the last forms of serfdom abolished?
A
1906-1917
20
Q
By 1914, what happened to the most of the progress?
A
Directed to the workers in the cities, who didn’t dominate the labour market
21
Q
Tsarist Russia (Pre-1914)
A
- Least developed part of Europe
- Low income per capita, education levels.
- 1861 – Onset of modernisation -> beginning of catchup process
- Emancipation of private serfs
- Free from state serfdom 1866, corporative serfdom 1906-17
- Bounds eliminated by reforms -> free up labour and allow migration.
- Subsistence farming still popular – produce large part of food you consume.
- Emancipation of private serfs
- Improved banking system -> formed state bank for issuance of bank notes
- Foreign Direct Investment: notably from Belgium
- Capital goods industries foreign owned by British, French and Germans
- Foreign capital flows -> development of investment banks -> fund industry and develop railroad
22
Q
Industrial development in scale and productivity:
A
- Industrial output grew 1.75% pa. 1861-1913.
- Comparable to Western Europe average of 1.9%.
- Initial low level -> no convergence yet.
- By 1914, Russia produced 56% of own machinery and equipment demands -> increase self-sufficiency in capital production
- Wages rose 25% by 1907 -> stagnated until 1914.
- 1914: Mostly agricultural -> 1/2 of national income and 2/3 of employment
- Agricultural output per acre rose -> still low by Western standards
- Last forms of serfdom only abolished in 1906-17
- Input use (fertiliser) very low -> less input-intensive agriculture to increase productivity -> lower output per worker
- Russia use 2kg fertiliser per ha (1910), UK and US > 20kg fertiliser per ha
- Suggests potential for gains from increasing inputs.
23
Q
First world war
A
- 15 million join military and 8 million refugees following German occupation
- Large scale population displacement -> lower productive potential
- Large scale industry increases by 20%, but small scale industry collapses.
- Grain output reasonable and resilient:
- Stopped exporting grain but famine occurred due to subsistence crises due to acquisition of grain and quota divided in each region
- War disrupted transport system: distribution of food difficult.
- Government imposed maximum prices (Special Council for Food Supply) -> reduce incentives for peasants to sell -> undersupplied towns -> political effects: source of revolution.
24
Q
When was war communism?
A
1918-21
25
War communim: After 1917
* Repudiated all foreign debts;
* Nationalised all industry and centralised management
* Redistributed land from nobles to peasants
* Requisitioned grain to fight civil war
* Prodazvyorstka -\> requisition of agricultural surplus from peasants for distribution among remaining population
* State control of foreign trade
War communism intended to be temporary
26
Russia between 1913-1920
* Agriculture falls 40% - grain harvest reduce 42%.
* Industry falls 80% - coal production decreased 75%
* Trade almost 0%
* 90% of wages paid with goods rather than money
27
1921: economic ruins
Rapid inflation -\> prices reached 17000x 1914 level.
Material shortages -\> lack of inputs -\> migration away from cities (reduce barter of industrial goods for food) (Moscow lost 53% of population 1918-20).
Food requisitioning: Famine (1921/22) and mass starvation -\> 3-10 million deaths
Falling urban support for Bolshevik party -\> change in policy
28
When was the new economic policy?
1921-1929
29
New economic policy
March 1921: Introduction of New Economic Policy = “state capitalism” -\> intended to be temporary.
Partial return to private property, enterprise and profit -\> restoration of market economy with state ownership of large industry, banking and foreign trade.
Mixed economy in which state industry traded with individual peasant agriculture through a market.
(Attempt to create missing material preconditions for socialism)
30
Effects of the new economic policy
Improvement occurred due to NEP in all sectors of economy -\> Economy moving positively
* 75% industrial production remained state owned but used price system
* Small and medium firms denationalised.
* Industry increased 40% above 1913 levels
* Dual communist-capitalist system for agriculture -\> peasants able sell some surplus output at market prices (food tax instead of requisitioning)
* Agriculture increased 10% above 1913 levels
* Encouragement of foreign trade
* Trade increased to 50% of 1913 levels
31
Explanations of end of NEP
* Growth slowdown -\> limits reached? -\> incentive for change
* Consumer good shortages -\> reduced incentives for peasants to produce output after 1926.
* 1928 Grain procurement crisis -\> large gap between state target and actual output of grain.
* Creation of undesired classes
* NEP created affluent, landowning peasants (kulaks) -\> undesired by state.
* NEP created capitalist merchants and other market economy “parasites”.
* Change in political leadership to Stalin post-1928.
32
Soviet economic planning (1928-1991)
1928: Soviet communist system (top-down model of economic planning)
* Series of 5-year plans
* Central planning by state agency without responding to price signals
Plans emphasised:
* Extensive growth (increasing capital stock and labour inputs, not TFP growth)
* Heavy industry (instead of consumer goods production)
33
Effectiveness of 5 year plans
Investment
Success
* Gross investment increases 3.5x (1928-38) -\> 10bn roubles to 35bn roubles
* 1928: small capital stock and large, unemployed rural population -\> investment rate grew from 8% to 20%
* During global depression and recession -\> relative success
34
Effectiveness of 5 year plan:
Industralisation
* Gross investment increases 3.5x (1928-38) -\> 10bn roubles to 35bn roubles
* 1928: small capital stock and large, unemployed rural population -\> investment rate grew from 8% to 20%
* During global depression and recession -\> relative success
35
Effectiveness of 5 year plan:
Industralisatiom
Success
## Footnote
1928: Agriculture 50% and Industry 20% of GNP
1937: Agriculture 30% and Industry 30% of GNP
Due to underemployed agricultural workers before -\> potential for gains from urban migration (higher marginal productivity) -\> better productivity.
Structural shift from agriculture to industry -\> induced rural-urban migration
But what are explanations for migration? Heavy industry investment good in long term?
36
Effectiveness of 5 year plan
Per capita GNP
Partial success
GNP p.c. increases 60% (1928-1938) -\> good relatively to Western countries
37
Effectiveness of 5-year plan
Living standards
Failure
* Private consumption + non-defence government spending increases 25%
* Private consumption increases 9%
* Living standards less impressive -\> despite high GNP pc growth.
* 1933 workers’ real earnings 1/10 of 1926 level
38
Effectiveness of 5 year plan:
Reasons for slow consumption growth
39
Agriculture
widespread collectivisation after 1929: FAILURE
Individual farms merged into large communal or state owned enterprises
Means of production socialised -\> NEP markets removed -\> no private ownership in farms
% of peasants collectivised: 2% (1928) to 95% (1938)
40
Consequences of the widespread collectivisation after 1929
Adverse effects on production of animals, grain and vegetables
* Cattle and sheep culling (1928-33): -70% and -30% -\> investment decreased
* Low levels of grain output (1928-38): Around 60 million tonnes -\> compared to 80 million tonnes in 1913
* Non-collective farms dominate production -\> indicates failure of collectivisation
Incentive and resource allocation problems -\> farmers resist collective farms -\> lack of skills for high agricultural productivity.
Increased rural-urban migration (unintended positive consequence) -\> increased growth.
Famine (7-12 million died 1931-33)
* Implications for labour force and human capital
* Consequence of distribution and entitlements -\> lack of accessibility of food -\> grain output fell but number of animals fell, so grain per capital should have increased (indicates distribution problem)
41
Industry
Heavy industry touchstone of Soviet economic performance
* 8-10% increase in industrial output (1928-40) -\> unofficial data
* Employment grew 9.5% -\> indicates stagnant TFP growth (industrial growth due to extensive change -\> no intensive change)
* But more workers allowed output to increase and employment to increase
* Structural change shifted underemployed from agriculture to industry -\> fostered rise in total output
* Output by type differs: emphasis on heavy industry
* Aircraft, tanks and artillery production increase substantially
* Coal, cement increase relatively
* Consumer goods: sugar, cigarettes, cotton stagnant -\> failure!
42
World War II
1/3 of wealth destroyed
26 million Russians died (15% of population) -\> fall in current labour supply
Expected births did not happen -\> fall in future labour supply -\> demographic structure
Non-military GNP fell 80% (1940-42) -\> low living standards
43
Soviet Golden Age:
Recovery post-war
Growth averaged 6% in 1950s
Income and productivity increases continue until 1970
44
Soviet Golden Age:
Large unexploited catch-up potential
Less developed country initially (1950) -\> suggests large catch-up potential -\> left unexploited than Western counterparts
Catch-up potential massive even in 1960: 40% of US levels of growth
But growth declines from 1960s -\> failing to meet progressively less ambitious plans
Plan: 7% (1966-70) ◊ 4% (1981-85)
Reality: 5% (1966-70) ◊ 1% (1981-85)
45
Soviet Golden Age: Explanations for decline:
Absense of markets
Absence of markets -\> lack of incentives to innovate and increase efficiency due to sole aim of meeting output targets
* Wages do not reflect worker’s productivity
* Soft budget constraints to meet output quota -\> non-responsive to prices and competitive pressures -\> lack of market signals.
* Poor incentives for technological progress -\> rewards for meeting output targets and R&D carried out by institutes (not businesses)
* BUT: Ever-present issue even before post-WW2 period -\> R&D institutions never changed around 1970 -\> timing problem
*
46
Explanations for declines
Exhaustion of underemployed labour supply and cheap resource supplies
Exhaustion of underemployed labour supply and cheap resource supplies -\> Diminishing returns to capital (no innovation) -\> extensive growth reliance
Unable to continue structural shift from agriculture to industry due to lower under-employed labour in agriculture -\> no labour to operate new capacity
Rise in investment rate in 1930s/40s -\> structural unemployment eliminated 1950s -\> capital accumulation with diminishing returns -\> growth slowdown due to no other engines of growth
47
Soviet Golden Age: Explanations for decline
Depleted resources
Heavy industralisation
Depleted resources -\> expensive resource extraction from remote Siberia -\> costs increase and constrained growth -\> unable/unwilling to import (cheaper option).
* Accessible natural resources in European USSR fully exploited
Heavy industrialisation dependent on cheap resources of labour and resources -\> post-1960s lack of access to cheap inputs -\> extensive growth model spent.
Overall: wasted investment as capital accumulation did not lead to more output
Investment raised capital stock by 60% -\> output increased by 4% and TFP dropped 24%
48
Soviet Golden era: Reason for decline
Resource misallocation intensified by planning
* autarky government enacting top- down planning
* Policy mistake: Emphasis on retooling existing plants and old factories (maintain existing industries) -\> reconstruction instead of adoption of new industries
* Older plants made 58% of Soviet steel in 1970s -\> too small to realise scale economies
* TFP growth: 19% (1965-75) -\> -2% (1975-85)
* Gas, electricity, chemicals remain moderately successful (1965-85)
* Construction, light industry, food, coal, oil, ferrous metals become extremely unproductive industries
* Market economy: would shift resources to productive industries and import goods produced unproductively
* Attempted to be self-sufficient: unable to trade to import unproductive goods (resources) -\> continued inputs into unproductive industries and rising costs of investment
49
Soviet Golden era: Reason for decline
Misallocation of investment due to arms race with America (external factor)
Diverted resources from innovation to military -\> reducing productivity rate
Military spending 1966-70: 12% of GDP -\> diverted R&D resources to military innovation.
50
Sources of soviet growth 1928-1970
intense focus on industrialisation and urbanisation to mobilise resources and direct them into productive activities emulating advanced economies -\> but through top-down approach rather than market economy -\> lack of technological innovation and reliance on structural change and investment (trade-off with consumption)
* TFI growth: Rapid accumulation of capital -\> allocation of producer goods (5-year plans increased fraction of capital goods) and large-scale plants for EoS gains.
* TFI growth: structural shift allowing underemployed agriculture labour to gain work in industry -\> higher productivity gains.
* Use of output targets and provision of soft budget constraints to industry
Growth through TFI growth but at the expense of personal consumption and low living standards
51
What was productivity in Russia?
1928-1940: 1.7
1960-1970: Declining
52
GNP in Russia:
1928-1940: 5.8
1950-1960: 5.7
1960-1970: 5.2
53
What was the investment rate?
Grew from 8% to 20% between 1920s to 1930s
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