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Adam I. Gerard
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Why the Soviet Union Collapsed

I’m pretty open about my hostility to Marxism, Communism, and Maoism.

I got into reading about the Soviet Union after researching more about the collapse of U.S.-led Afghanistan since the Soviet Union encountered similar problems back in the 1980s.

I’m vaguely familiar with the literature on the subject of why the Soviet Union collapsed and wanted to detail some of my notes and findings.

Traditional Narrative

I think the following succinctly reprises the received view (dominant, default mainstream view, widely-accepted) about these events:

  1. The Soviet Union stagnated and economically declined under Brezhnev.
  2. This was largely caused by mismanagement by Soviet planners.
  3. Gorbachev implemented glasnost and perestroika to offset this economic collapse.
  4. These decisions accelerated the already bad situation and ultimately led to the fall of the Soviet Union.

What was unclear to me:

  1. Why 2 occurred. What did this entail exactly? In what ways?
  2. What are the specific details of 3?

Misinvestment

Download the article.

The article above takes the stance that the primary cause for the collapse of the Soviet Union was poor investment decisions by Soviet bureaucrats.

They not only invested in basic commodities that had saturated markets and fierce, entrenched, competition (like Steel and Oil), they did so by mostly attempting to shore up the existing inefficient infrastructure (using buildings from the 1930s instead of building brand new factories), and prioritizing commodities of little relative value (like food - which is essential to have but insufficient to drive an entire economy instead of consumer electronics like cell phones, computers, or future consumer products, etc.).

The core investments were made in these sources of declining value (both face and marginal) and to the detriment of expanding the few sectors that were widely successful (like Natural Gas). If the Soviet planners would have drawn back and stopped building Tractors (that also lacked being upgraded much over twenty years - they were essentially the same models) and trying to build ever-larger surpluses of Food and Oil, they might have cornered the world’s Natural Gas market instead. The Soviet Union might still be around and have higher economic output than many of its competitors as a result.

By doing so they could have used Competitive Advantage to trade for the other things:

  1. For example, John Deere tractors are far superior technical marvels than any Soviet-made tractor.
  2. Tractors are an important part of the local economies and niche industries but not the basis for the entire economy as a whole.

Technical Debt Versus Building The New

The great paper above also states that the Soviet Union invested heavily in pre-existing steel smelting mills (mostly built in the late 1800s and early 1930s). Eight such factories made almost half of the entire yearly output in the Soviet Union.

Japan by contrast built nine new factories that were larger and more advanced. Japan was able to exceed the entire output of the Soviet Union already by the late 1980s.

So, it’s not just about investment into the wrong industries. Soviet planners failed to invest in modern capital projects - they failed to let go of existing plants and processes and start fresh.

Gorbachev’s efforts failed since capital allocation did not change these existing attitudes. These were already hostile toward centralized leadership and became increasingly so. Greater liberalization in this case just meant greater investment inefficiency.

Intellectual Capital

There’s a big difference between starting fresh (with equipment and machines) and starting fresh with ideas, people, and experience. Countries that have a lot of the former but not much of the latter tend to lag behind others that have both or lots of intellectual capital.

One major difference between China and the USSR is that China lacked a large infrastructure base (few factories) but had almost a millennia of imperial exams.

Japan, Korea, Singapore, and so on (although often to much lesser extents) invested heavily in people-capital rather than using existing infrastructure (which they lacked or had none of):

  1. https://brill.com/view/journals/coso/14/1/article-p53_3.xml?language=en - Japan’s exams have a basis in Meji-era contact with the West as well as with Confucian-style Chinese exams.
  2. https://en.wikipedia.org/wiki/Gwageo - South Korea’s exams have a basis in China’s preceding Imperial Examinations going back centuries.
  3. Singapore inherited a large part of the British Imperial education system from the 19th century on.

Ideas transfer or change. Machines and factories are much more difficult to modify and often have diminishing marginal returns when upgraded successively (due to hard limits in design).

Sometimes, you want to reinvent the wheel. In such cases, you probably want entirely new wheels - not tacking on something to what’s already out there.

Looking at Dubai: a modern, gleaming, metropolis almost entirely build in the last two decades. The Soviet Union successively chose to continue using existing infrastructure and collapsed in the same time frame.

Corruption and Data Impurities

Autocratic systems tend to be more prone to corruption.

When systems lack accountability they tend to obfuscate information for the benefit of those in power (or, perhaps, more importantly, those who are also in power but challenging the top leaders).

When systems simultaneously guarantee full employment, there’s no incentive for people to be at their best or to try.

The Soviet Union exhibited both of these weaknesses.

I think these likely contributed to the investment scenarios above. If central planners lacked correct information, they were more likely to invest in the wrong industries or to have an accurate picture of their productivity/output.

Moreover, autocratic systems need not rely on popular support for their rule.

As such, few planners ever visited any of their constituents or areas of management (since they were entrenched in their positions of power through other means).

Hegelian Opposition and American Leadership Decisions

In many ways, the U.S. is defined by its being the opposite of the Soviet Union:

  1. Low investment in raw material extraction.
  2. Moving almost the entirety of the manufacturing base outside the country.
  3. Little, almost no (laughs), central planning at all.
  4. Trapped in the cult of technology.
  5. Full employment is defined at ~4% unemployment in the U.S.

The one major parallel that America shares with the Soviet Union (the long-lasting invasion of Afghanistan) is one of two great strategic blunders I think America’s made recently. And, which have cost America a period of great prosperity and stability.

I find it humorous that a post-scarcity economy appears to be possible on the horizon (in all countries not just the United States or in the West) since the primary driver of abundance is capitalist innovation (no Communist country has contributed much to science since Sputnik - all other efforts have merely replicated something previously existing). Some of that was made possible by the usually beneficial arrangement between American corporations and Chinese labor/manufacturing. Cheap labor meant greater profits for U.S. companies, lower costs for U.S. consumers, and allowed China to industrialize its largely agricultural economic base.

I now favor moving most manufacturing out of China and into more strongly U.S.-aligned countries like India and Indonesia. For example, South Korea and Japan (I'm mostly South Korean / Japanese in immediate ethnicity) are both moving their industrial base out of China: https://www.washingtonpost.com/world/asia_pacific/japan-helps-87-companies-to-exit-china-after-pandemic-exposed-overreliance/2020/07/21/4889abd2-cb2f-11ea-99b0-8426e26d203b_story.html and https://asia.nikkei.com/Business/Business-trends/South-Korean-companies-shift-production-out-of-China. I think this will lead to greater prosperity and economic development in India and greater economic stability elsewhere.

Hopefully, the outcome is truly some kind of Hegelian sublimation (whereby two opposing ideas collapse into a better, higher, idea that obviates the previous two, contains the better elements of both along with something new, or where past antagonism recedes).

Sino-Soviet Split

One factor that's often glossed over involves the rivalry and outright conflict between Maoism (People's Republic of China) and Marxism (Soviet Union). If the two countries would have cooperated from the 1970s on (instead of being antagonists to each other), history might have turned out quite differently.

The United States was able to play a long game of realpolitik that allowed the Western World to emerge victoriously. From the 1970s on, no Communist great or superpower was able to cooperate (far against the spirit of their espoused ideologies) and Comintern failed to be a truly international organization.

Best to get your enemies to fight against each other than fighting you.

This, I think, leads to three insights:

  1. One major difference between now and the 1970s-1990s is that China and Russia are strongly aligned. This is very concerning.

i. The PRC had no interest in keeping a rival to the throne of Communism afloat back in the 1990s (nor could they have been able to). Now, the two countries are much more closely aligned (militarily, economically, politically) and by most accounts much more powerful. I think there's a much lower probability that one of these two countries would similarly collapse today.

ii. Furthermore, two countries might accept stalemate or defeat in one hemisphere but concentrate their efforts on the other (stalemate in Europe and island conquest in South East Asia).

iii. "Never fight a land war in Asia" and "never invade Russia" are two strategic mantras that are oft-repeated. Unfortunately, if the two powers are aligned, they have the combined advantages of both.

  1. Economic development from the 1980s on in both the United States and China was driven in large part by their mutual interdependence: https://www.refworld.org/pdfid/52cfef6b4.pdf (e.g. - China is America's second largest trading partner).

i. America enjoyed unparalleled economic might after the Second World War namely because it was the only country to emerge nearly unscathed: Britain had been bombed for years and its Empire dismantled, Germany bombed flat, Japan burned down, China invaded and was devastated by Civil War, and Russia decimated by the most barbaric kind of Total War.

ii. The total number of factories in the United States has dramatically dwindled year after year and the majority of the world's industrial output comes from the Chinese Mainland (the main driver of economic growth there).

iii. China had an interest in maintaining close ties with the United States since the USSR was unwilling to help it technify and industrialize.

iv. The absence of Soviet consumer goods (and Russian consumer goods falling the collapse of the Soviet Union) resulted in greater U.S. trade dominance in China (China is ts one of the top export trade partners for the U.S.).

v. Today, China has a choice of partners and seems less dependent on American trade to drive its economic growth. The majority of Russian manufacturing may be performed in brand-new, modern, Chinese factories.

  1. I also think the sequence of historical events from the 1990s demonstrates that political (re)branding means little in reality. To be more precise, that Russia and China are likely to remain autocratic and intertwined regardless of the outwardly espoused forms of government they present themselves as being governed by.

i. Both Russia and China today are largely state-managed plutocracies (oligarchy of the wealthy or those who control the dominant financial and manufacturing institutions) and they have remained as such despite transitioning from Imperial Monarchies to Republics, and into (or out of) Communism.

ii. This may dash my hopes that Communist China will peacefully integrate into the rest of Asia's mostly Westminster-style federal democracies. We'd have North to South liberal republics if the people of China overthrew Communist leadership and installed a Taipei-led federal republic instead (presumably reunifying the country under the Kuomintang).

iii. Even if China transitions outwardly to some new government kind, Russia will prop up its interests and I think it increasingly unlikely that Taiwan will come to govern most of the mainland in such a scenario. (Unless Russia and China can be similarly split like in the 1970s on.)

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