Industry

Government agencies controlled "the commanding heights" of the economy, including foreign trade, banking, and transportation, but primarily the heavy industry that had survived the war. This mixed with private activity in food, services, and consumer goods to accelerate economic recovery.
Debates raged within the Communist Party about how to industrialize, how quickly to do so, and how to pay for necessary imports of equipment.

By 1928, Josef Stalin, having defeated rivals to secure political power, ended those debates by backing a rapid industrialization plan reminiscent of the maximal project proposed by his defeated rival Leon Trotsky. Favoring centralized control by the state, Stalin and his supporters saw heavy industry as the key to defending the USSR from its many enemies. The Soviet Union purchased machine tools, production lines, and blueprints from Western firms desperate for business amid the Great Depression.

During the First Five-Year Plan (1928-32), the Soviet Union had brought in American engineers to build Ford-style production lines turning out tractors, trucks, and autos, which also had the potential to manufacture tanks, planes, and other requirements of a modern military. Investing every spare ruble in heavy industry, the Stalinist state forced workers to toil in return for stingy rations of food, clothing, footwear, and other necessities. Moreover, the state paid for the imported industrial plant with grain requisitioned from brutally collectivized peasants and with raw materials often extracted using compulsory labor. The First Five-Year Plan achieved astounding public-relations victories at enormous cost. Although the inflated official figures showed a doubling of industrial production---and more than that in some key sectors---growth was impressive, especially in stark contrast to the failure of capitalist economies mired in the Great Depression.

During World War II, the costly investments of the 1930s proved to be assets. Individual projects demonstrated their worth by humming day and night to equip the Red Army. Strategically constructed on barren steppe east of the Ural Mountains, the world's largest steel production complex, Magnitogorsk, produced half of the steel used in Soviet tanks during the war. The government reacted to the German surprise attack, moreover, by evacuating 1500 strategically important enterprises from western regions, re-establishing them safely beyond the enemy's reach. Thus the Soviet Union was capable of continuing to fight even after western industrial regions fell to the Germans in 1941. By 1945, the Soviet Union had lost some 32,000 industrial enterprises and as much as half of its railway mileage, a significant percentage of its industrial capital. Glorying in victory but reeling from the loss of more than 25 million people, the Soviet Union endured further travails. A postwar famine coincided with further austerity designed to speed postwar reconstruction and, by 1947, to rearm for the Cold War conflict with the United States. Officially industrial production rapidly rebounded to prewar levels, but in reality rebuilding continued well into the 1950s.

Although the Soviet Union's industrial base had won the war, it proved in the long run an unstable economic foundation and a mixed blessing. Favoring steel over shoes, the industrial economy that postwar leaders had helped to build in their youth in the 1930s had been good enough to win the war, a fact discouraging almost all of them from recognizing the necessity of innovation and diversification. Around 1960, Premier Nikita Khrushchev did initiate investment in synthetic fibers and agricultural chemicals, in which the USSR had lagged behind. Then the Soviet Union discovered vast oil and natural-gas fields, which it lucratively exported to Western Europe during the boom in global energy prices in the 1970s. However, the profits from this trade financed importing consumer goods to ensure domestic stability and investing in top-secret, high-technology sectors of the military-industrial complex. Investments in modernizing industrial capital, by contrast, returned little. Although the Soviet Union extolled a "Scientific-Technical Revolution," it continued to rely on an industrial model inherited from the 1930s. Few incentives encouraged enterprises or their managers to innovate. As capitalist economies underwent de-industrialization and there was a rise in post-industrial enterprises based on services and information, the Soviet Union plodded along with its constrained consumer economy, an aversion to computers, and bureaucratic brakes on efficiency. By the mid-1980s, new General Secretary Mikhail Gorbachev inherited an industrial sector desperate for re-making but resistant to reform.

Suggested Reading and Materials

Stephen Kotkin, Magnetic Mountain: Stalinism as a Civilization (University of California Press, 1995).

Stephen Kotkin, Steeltown, USSR: Soviet Society in the Gorbachev Era (University of California Press, 1991).

Moshe Lewin, The Soviet Century (Verso, 2005).

Moshe Lewin, The Making of the Soviet System: Essays in the Social History of Interwar Russia  (New Press, 1985).

Alec Nove, An Economic History of the USSR, 3rd ed. (Penguin, 1993).

Seventeen Moments of Spring, "Economics" http://soviethistory.msu.edu/theme/economics/