Fateful Embrace of Communism } 9
A state-planned economy, on the other hand, would lead to much more rapid
economic growth, driven in part by accelerated technological innovation and
constant revolutionizing of the means of production, while simultaneously
raising living standards and improving working conditions. Under a planned
socialist economy, the wealth produced by laborers would be used to benefit
the laborers, Marx explained.
Exactly how all this was to be accomplished organizationally was worked
out in the Soviet Union under Stalin starting about 1928 with the initiation of
the First Five Year Plan, comprehensive economic planning, and collectiviza-
tion of agriculture. The high rates of growth of industrial output achieved by
the USSR over the next several decades seemed to vindicate Marx’s predic-
tions and demonstrate the superiority of the socialist model. So too did the
Soviet Union’s pivotal role in the defeat of Nazi Germany in World War II. The
industrial base built under Stalin’s ruthless Five Year Plans allowed the USSR
to vastly outproduce Nazi Germany in the instruments of war. The emergence
of the Soviet Union after 1945 as a global rival of the capitalist United States
gave further vindication of the Stalin-Soviet model. So too did Soviet prowess
in nuclear bombs, intercontinental ballistic missiles, and space satellites in
the 1950s.
The Soviet economic model was not without merits. Chief among these
was the ability to extract wealth from every crevice of society and funnel
it into projects favored by the planners. If one wanted to quickly set up a
plethora of new industries and expand production of products x, y, and z
by large margins in a short time, the system of state planning worked pretty
well. Consumption could be restricted, even pushed down, and the resulting
forced savings channeled via the central plan into investment in targeted sec-
tors. In a classic 1956 defense of industrialization under Stalin, the CCP noted
that Soviet industrial output that year was thirty times the peak pre–World
War I level of 1913.^14
Over time, however, acute problems materialized and accumulated in
the planned economy. Quality of goods was often poor or not quite the type
required. Efficiency in the utilization of inputs—labor, energy, material
resources—was extremely low. Producers had little incentive to use inputs
efficiently, but found perverse incentives to persuade the planners that they
needed ever more inputs—to be supplied by the economic planners. State
economic planners proved to be much inferior to entrepreneurial capitalists
in accomplishing technological innovation and revolutionizing production
processes on the basis of those new technologies. And standards of living for
ordinary people were low. The counterpart of forced savings to achieve high
rates of investment in industry was poverty for the people. The fact could
be hidden from the people for a while by state control of information. But
eventually, awareness of the higher standards of living in capitalist economies
seeped into even closed socialist economies. During the 1980s, for example,