Why the Soviet Union Fell
Mark Thoma reminds us of Paul Krugman's decade-old thoughts on the moral economy of communism:
The Unofficial Paul Krugman Web Page: [PBS's] stark honesty in a way makes the account of the Soviet Union's wartime achievement [during WWII] all the more impressive. The Soviet Union did not win through military genius: most of its trained officers had been purged in political witch-hunts, and while the war eventually threw up a new set of leaders, they were competent rather than brilliant - and their advice was often overruled by a dictator whose military judgement was usually disastrous. Russian soldiers fought with dogged heroism - but then so did the Germans. Why did the Russians prevail?
The answer is surprising, given the way the 20th century has actually turned out. The Soviet triumph in World War II was, above all, a victory of production.... Soviet industry managed to build tanks, artillery, and aircraft that were technologically a match for Germany's weapons, and to do so at a rate that consistently exceeded anything their opponents thought was possible....
What does this have to do with the world of 1997? Well, nowadays we take the triumph of capitalism as something preordained by [its] superiority.... [E]very time a Communist regime collapses, it turns out that the actual state of the economy it governed was far worse than anyone had imagined. For example, typical estimates of the GDP of East Germany before the old regime collapsed put its real GDP per capita at 70 or 80 percent of the West German level - meaning that East Germany was actually richer than some regions in the West. Yet after the fall of the Berlin Wall, visiting Westerners found something that looked like a Third World economy, with antiquated factories (and disastrous environmental problems) producing consumer goods of ludicrously low quality.... We used to think that there was a real technological race between socialism and capitalism.... It seems obvious to many people in retrospect that the productive and technological triumphs that Communists used to claim - all those heroic photgraphs of dams and posters of muscular steelworkers - were mere propaganda....
But one lesson of "Russia's War" is that matters are not that simple.... The fact is that Stalin did transform Russia into a massive industrial power - a power tested in the most unambiguous way imaginable. And his successors did achieve real technological triumphs - not just showy triumphs like sending cosmonauts into orbit, but the creation of a highly sophisticated scientific and engineering establishment. True, Russia was never any good at producing high-quality consumer goods. But it was not always the bumbling, incompetent system we now imagine.
What this means is that the collapse of Communism and the triumph of capitalism need more of an explanation.... [A] market economy is more efficient than a centrally planned one... but the question is why a system that functioned well enough to compete with capitalism in the 1940s and 50s fell apart in the 1980s. What went wrong?
One possible answer is that changing technology changed the rules... the age when countries or companies grew rich by making heavy products in big factories seems to have passed. One can make a case that whereas old-fashioned heavy industry was susceptible to central planning, new technologies, especially in microelectronics, favor free-wheeling competition.... But neither technological change nor globalization can explain the fact that socialist economies did not merely lag the West: they actually went into decline, and then collapse. Why couldn't they at least hold on to what they had?
I don't think anyone really knows the answer, but let me make a conjecture: the basic problem was not technical, but moral. Communism failed as an economic system because people stopped believing in it.... Capitalism can run, even flourish, in a society of selfish cynics. But a non-market economy cannot. The personal incentives for workers to do their jobs well, for managers to make good decisions, are simply too weak....
So why did the system ever work? Because people believed in it.... [T]hey did not take as much advantage of the system as they might have (and did, in the system's later years). And... because people in authority believed in the system, they were willing to impose brutal punishments on those who did try to take advantage....
The market does not require people to believe in it; but the centrally planned economies that live inside a market economy, known as corporations, do. Everybody knows that financial incentives alone are not enough to make a company succeed; it must also build morale, a sense of mission, which makes people work at least somewhat for the good of the company rather than think only of what is good for them. Luckily, under capitalism an individual company can fail without taking the whole society down with it - or it can be reformed without a bloody revolution....
In the end, then, capitalism triumphed because it is a system that is robust to cynicism, that assumes that each man is out for himself. For much of the past century and a half men have dreamed of something better, of an economy that drew on man's better nature. But dreams, it turns out, can't keep a system going over the long term...
