[MUSIC] Today, I would like to talk about the Brezhnev and Khrushchev eras, and I would like to make some comparisons. And later on, I will talk about the Soviet foreign policy in the 1950s, 60s, and 70s, that is my outline. Stalin left behind a disastrous legacy in the political life of the nation of course, and also very significantly in the economy. And after Stalin's death, it was clear that their economic policy must change in the sense that we must give a better standard of living to the Soviet people and what they had up to that time. Where all the scarce resources were devoted to heavy industry military needs of the country. Now, how do you improve standard of living? Well, first of all, is a better, A better eating food, and therefore, agriculture. And agriculture has always been the step drive of the Soviet regime. Partially because of the general backwardness of Russian agriculture before the revolution. And most significantly because of scarce resources and the structural changes, which were introduced by collectivization, which deprived the peasantry for proper incentives it produced. So Khrushchev, once he established himself as the Chief Leader, so to speak, was the most devoted attention to the question of agriculture, and he constantly made reforms. And this is what is characteristic of Khrushchev as opposed to the Brezhnev era, the constant attempts to make changes. That is, Khrushchev was a believer in the superiority of the planned economy of the Soviet system. And since a thing was working quite well. You believed he acted as if he understood that must make some changes and everything will be fine. And so what we seen in the Khrushchev period is constant reforms, constant attempt to change this and change that, and some of them were indeed meaningful and helpful. Others claimed to be called by, in the era of the Russia regime, as harebrained schemes. And indeed, many of them were harebrained schemes. So, what we have in the 1950s and 1960s, in the Khrushchev era, is constant attempt, constant reforms of one thing or another. Well, in the case of agriculture, first, Khrushchev, as so many other Soviet leaders, believed that what is bigger is better. And consequently, attempted to amalgamate the collective farms into larger unit. Stress, also Soviet farms, that is state farms. Well, of course the consequence was that the decision-making was further removed from those who were actually carrying out the work, and took away further incentives and it really didn't work very well. And then he allowed the breaking of this large collective firms into smaller units. And then the matter of the private plot, which is so important for the purpose, for the Soviet peasantry. So much such a large percentage of their food, income depended on private plots. And the leaders of the regime understood that in order to feed our country, we needed the produce, which were produced in these private plots on the one hand. On the other hand from an ideological point of view, this was something not fully acceptable. So there is a constant back and forth about allowing, increasing the size of the private plot, and decreasing the size of the private plot. Also, these private plots were very profitable. If the collective farm happened to be near a big city, such as Moscow, where people could take their produce in to the farmer's market in Moscow and make other good income. It made somewhat less sense when somewhere in Siberia, which was still good because it provided you with potatoes, overwhelming percentage of the potato output in the Soviet Union was made in this private lot, and chickens and the likes, and so this was an important point. Well, the first reform, if this can be called a reform, is the decision of the Khrushchev command is to give higher prizes for products, agriculture products to the collective farms who had to do the compulsory deliveries. And for this, they received better prize. Then the major reform, was in 1958, to dissolve the machine tractor stations. Now, the machine tractor stations when they were established, immediately after collectivization, was a necessity. There were simply not enough tractors and scarce resources had to be distributed as well as there could be. Now in 1958, dissolving the collective farms actually had some negative effects, in as much as the workers who work in these, actually tractor stations, did not like the idea of being reduced to lack of farm members, and as much as possible, they wanted to escape into the cities. And consequently, the machines were less well taken care of, and were still not enough. The larger farms, the larger collectives could manage fairly well, but the smaller collective firms actually, it was a step backward. Nonetheless, in the long run, it was a necessary reform, decision-making about when to carry out harvest and sewing more rationally decided. Another major reform in the agricultural area was the so-called virgin land program introduced in 1954, 1955. What it meant was to attempt to cultivate lands in Southern Siberia, in Central Asia, which up to that point had not been cultivated, because they were not considered to be very suitable for agriculture. And this was a large scale project, something like 300,000 young men were persuaded to go into these very undeveloped areas where the super structure wasn't there. And this was regarded by some, no doubt, perceived as a heroic project. To bring lands under cultivation and, thereby, increasing the agricultural output of the country. Was it successful? Well, it's difficult to say. When the climate was poor, when the weather was poor in central Russia, the contribution, which these newly cultivated lands made for feeding the people, was substantial. On the other hand, circumstances were such that their people, Attempted to come back and escape those very harsh conditions. And the cost of transportation was such that it was three or four times, cost more to transport the grain somewhere from Siberia into where it was to be consumed than in the central part of the country. So, what can we say? What can we say is that agricultural output indeed increased and, thereby, the feeding of the Soviet people, which is absolutely the most significant part of material well-being, their ability to eat, increased during the first year of the era. And the larger point, which one can make, that what the Soviet people experienced in the 1950s, 60s, until the mid-70s in the middle of the Khrushchev era was a gradual rise of the standard of living. And in that sense, these years, these two or three decades were the best in Soviet history, in the sense that people actually saw an improvement in their way of life. And consequently, it was assumed that this can be projected into the future. It didn't quite turn out this way. Now about industry, well, reforms in industry. The fundamental problems are inherent in the structure of Soviet industry and in Marxist thought. Well, it was a state-owned, state-controlled, centrally controlled economy. And the very centralization was a source of a major problem, in as much as their economy was controlled by ministries. The Soviet bureaucracy, the Soviet ministry structure had something like 40 or 45 ministries, because each ministry administered the different parts of the economy, of industry. Now, over-centralization. The decisions were made in Moscow. Now, let us say somewhere in Siberia, Mine produced some raw material, and there was a nearby factory which needed this raw material. But since the ministry or structure was such that everything was centralized, the material often was sent to Moscow, given over to another ministry and then sent back to the neighboring factory. So to break down this over-centralization, Khrushchev came up with the idea later to be called a harebrained scheme, is to divide the country into 100 industrial regions. And these industrial regions would have their autonomy of making decisions about industry in their own locality. But that created different irrationalities, that created a new bureaucratic structure. And so there was not two levels of decision-making in the localities and in the ministries in Moscow, which gave conflicting and this was not much of an improvement. Well, the fundamental problem is inherent in Marxist thinking, namely, it is only human labor which produces value. Well, the problem is, the implication is that capital does not produce value. There is scarce resources, capital, how are we going to distribute it? And there is no sensible nor rational way of making decisions. For example, we're building a railroad line. If we electrified it, will cost more. If we don't electrify, then we can build more kilometers, more railroads, which the country needs. On what basis will we make this decision? Furthermore, the very idea of suspending market mechanism, what does it mean? There must be ways to evaluate product and productivity. How should we do this? In the market system of course this is not an issue. In the market system, you produce something and if you can sell it, then it is okay. In the case of the Soviet economy, this was a problem. How did it work in reality? The work in reality was that the factories came up with plans, and the plans were approved in the ministry. And the factories were evaluated as doing well. And consequently, the factory managers, the local party officials received bonus for good performance. But, how do we know what is a good performance? Let us say a factory produces nails. And they come up with a figure, that the plan should cost for the creation of, I don't know how many tons of nails. So, the incentive, therefore, is to produce large nails because you can produce more in the same time forward. Well, if you give different definition, then the various plans are distorting rational economical decision-making. Namely, the market would take care of such problems because if you produce something and nobody wants to buy it, then you know you are not doing well. So the great economic reform is in 1962. A man by the name of Lieberman came up with the idea that as far as consumer goods are concerned, the performance, should be evaluated on the basis of whether the products actually can be sold. Well, this was a good idea, and this was a worthwhile reform. However, that left us with some problems, in as much as you cannot remove one segment of the economy. You cannot handle one segment of the economy differently than the other. Namely, the factory manager wants resources from heavy industry. Heavy industry is not working on the profit motive as the consumer would. Consequently, he wants to get as many resources as we can because there is no cost to them. There is no cost to accumulate large inventories because after all, this is a still an economy of shortages. The factory manager wants to have as much to be available when he needs it, but these are irrationalities. Economically rationalities, which are built in the system, and one cannot imagine how they could be remedied. And the striking thing and the remarkable thing is that in spite of these deficiencies, in spite of these problems, the Soviet economy worked as well as it did. And after all, it managed at the same time, measurable increase of standard of living, and provide for the ever increasing Soviet military, and produce growth rate, which was higher than that of the capitalist world. And consequently, I recall people projected that when will the Soviet economy reach the same size as the American economy, because if we just take the line of the growth of the American economy versus the Soviet economy, then it is bound to meet somewhere in I don't know, in four or five decades, hence. [MUSIC]
