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Soviet Russia as a Model for Underdeveloped Areas

Published online by Cambridge University Press:  18 July 2011

W. Donald Bowles
W. Donald Bowles
Affiliation:
University in Washington
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Extract

A Wave of rising expectations has engulfed the underdeveloped areas of the world, and in its wake there remains an intense desire for economic advancement and national recognition. Until recent years the relatively luxurious level of living in the West, particularly in the United States, served as a natural focal point in the search for a pattern of economic life that would lead to growth in these areas. Since World War II, and particularly since about 1955, when the USSR adopted a stepped-up “trade and aid” program among the less-developed areas, increasing attention has been directed to the Soviet pattern of growth and the Soviet answer to “imperialism.”

Type
Research Article
Information
World Politics , Volume 14 , Issue 3 , April 1962 , pp. 483 - 504
Copyright
Copyright © Trustees of Princeton University 1962

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References

1 According to the official Soviet textbook on political economy, “The misanthropic Malthusian ‘theory’ was created for the purpose of justifying the social order in which the parasitism and extravagance of the exploitative classes thrive on the inordinate labor and the growing privation of broad masses of workers.” Politicheskaia ekonomiia (Political economy), Moscow, 1954, p. 299.Google Scholar

2 Actually, until the late postwar period the price level was rising so rapidly that the effective rate of interest was negative.

3 This is an important qualification. In many underdeveloped areas, an investment program cannot be achieved except through government channels. This means that the government must find a way to mobilize a significant share of national income. Conceptually, the upper limit of the share is what the people can or are willing to do without. Some years ago, Colin Clark expounded the thesis that any country with a tax load of more than 25 per cent of its national income would surfer from inflation. His thesis, while provocative, yet awaits proof.

4 Primary reference here is to prices of consumer goods sold in state stores, most of which originated in the non-industrial sector of the economy. The demand by Soviet enterprises for producer goods was controlled more directly by the state. Thus, the more than doubling of producer goods' prices in the prewar period was attributable to wage increases that outpaced the rise in industrial labor poductivity. To some extent, the price line was held through the use of grants directly from the budget (subsidies) to make up the difference between cost and planned price.

5 Construction of hospitals, water supplies, schools, etc., creates purchasing power, but the services thus available are provided free or at nominal cost.

6 Long-term foreign capital, unless there are strong incentives to the contrary, is discouraged by the lack of profit predictability under such conditions. Short-term capital actually moves out of the country under inconvertible currency standards as local speculators sell their own currency, which further increases pressure on the exchange rate, as long as it is believed that the rate will continue to fall.

7 The international negotiations conducted by the Soviet Union in the 1920's indicate that foreign capital was welcome. After Lenin's overtures in regard to foreign concessions, the Soviet government in October 1921 expressed its readiness to open discussions on the tsarist foreign debt as a prelude to the receipt of new direct investment in the form of concessions. (Interestingly, the Soviet attitude at that time was different from that of underdeveloped countries today, which generally favor loans rather than direct investment so as to minimize “foreign control.” One may speculate that the Soviet position was conditioned by the tactical consideration that foreign venture capital might be attracted in the direct form even while unconditional repudiation of the tsarist debt remained.) In 1922 at the Genoa Conference, and later at the Hague, Soviet delegates offered what they apparently thought were strong incentives for credit relations. For many reasons, delegates of the Allies did not accept Soviet terms, and the Soviet Union entered a period of what has been called the “credit blockage.” Despite the breakdown of credit negotiations, foreign concessions became fairly numerous, although such enterprises never produced a significant share of national income. At the same time, from 1923 on, short-term commercial credits were extended to the USSR. Although no foreign government provided funds, after 1926 several governments established programs guaranteeing commercial credits extended to the Soviet Union.

8 A net export balance in effect means that the rest of the world is incurring a debt to the exporting country, i.e., that the exporting country is granting, not receiving, credit abroad.

9 The greatly reduced prices of Soviet exports at this time led many Western observers to label Soviet shipments abroad as “dumping,” although sufficient evidence never existed to support such a charge technically.

10 While a 1936 regulation prohibited exports to countries whose currencies were controlled, the pattern of Soviet trade reflected at this time the inherent features of the world economy, so that the regulation perhaps may be best viewed as a bargaining device.

11 Finer, Herman, “The Role of Government,” in Williamson, H. F. and Buttrick, J. A., eds., Economic Development: Principles and Patterns, New York, 1955, p. 416.Google Scholar

12 An interesting question exists on this point. The typical American farmer, in the face of declining prices for his agricultural produce and rising prices for the products he must buy, is thought to expand his production to compensate for this price squeeze. Had the Soviet regime felt that the peasant supply of produce would have been equally responsive to such price changes, conceivably the collectivization drive need not have occurred at that time, if ever. In fact, at least two factors account for the response of the Soviet farmer to the “scissors crisis.” First, the peasant by 1928 was paying very small taxes in relation to previous levels, perhaps only one-third as much as before the war, and rent payments as such were virtually non-existent. As a result, the peasant did not need the cash that previously had been derived from marketings. Second, a change in the price structure within the agricultural sector itself made it more profitable over time to use grain for livestock feed. While the amount of grain used for feed was about the same in 1927–1928 as in the prewar period, in percentage terms this meant an increase because total output was less.

13 Ulam, Adam B., The Unfinished Revolution, New York, 1960, pp. 285 and 284.Google Scholar