In(direct) Defence of Capitalism: What We Can learn From the U.S.S.R

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Capitalism has come under fire recently  as an economic system: news of Britain going into a ‘double-dip’ recession, the USA’s economic  growth slowing down, and unemployment reaching as high as 25% in some Continental European areas [1], has led many to prepare their final nails for the proverbial coffin of capitalism.

Yet, what are the other options? Capitalism may have inherent flaws, making it far from perfect, but what are the actual, viable, alternatives? The main option many cite is Socialist economics, moving away from the neo-liberal economic attitudes found today through increased de-regulation, faith in the private sector, and ‘innovative economies’. But are socialist economics an actual solution to capitalism’s problems?

Socialist economics are centred on state planning; economic plans are enforced to bring about structure. Whilst the market is given much more freedom in most capitalist environments, socialist economics are much more focused on state control, particularly of ‘necessity’ industry – such as coal and water. The real crux though, of what makes socialist economics different from capitalism, is its objectives; Capitalism is designed to create profits, creating a gateway to inequality, as some will always profit more than others. Socialism, as an ideological critique of capitalism, looks to curb forms of social and economic inequality, which all inevitably evolve at some point from some ‘profit’. Thus, by removing profit from the economic equation, we find that lodged in the doctrine of socialist economics is a desire to simply create what is required, to focus on supply, not demand, and not produce what is designed for profit, and not simple use.  These three main branches, of planning, collective ownership and necessity over profit, are the bed rock of socialist economics, and are the foundations upon which certain economies have been built. But how do these fair in practice, in reality; do they triumph or fail?

The USSR is the most prominent example of a Socialist economic system that exemplifies both the merits and shortcomings of socialist economics. Born predominantly out of Stalinism, the USSR went down a less conventional path than that of its Western-European counterparts. 5 year plans were used for the first time, and were one of the many instances of state-led control of the economy, intricately planning the goals and turnovers certain industries would bring in; it was noted at the time that ‘no other country regulates its national economy as extensively as does the Soviet state’ [2].

The plans initially brought with them unprecedented success; the population, rife with a feverous passion towards the newly created Communist state after the dark autocratic days of the Romanov dynasty, benefitted from improved healthcare and education. This was brought about by new found economic wealth, gained from industrial expansion at a rate that surpassed Germany in the late 1800’s. The USSR therefore now had a more stable and efficient workforce than ever before, and this was shown everywhere; it became a world leader in exports for oil, gas, coal, iron ore and gold among other supplies, leaving the West behind.

However, the cracks would eventually appear. The heavily totalitarian regime that Stalin had implemented, and which continued after his death, had created a culture of fear in the USSR .Social living standards plummeted in comparison to the West; a microcosm of the situation could be found in Berlin, where the prosperous West Berlin was contrasted by the economically ruined, socially controlled East Berlin.

On a world view, the Cold War had now reached its peak, and the Reagan administration in America reacted by placing more government surplus into the defence and military budget, including a proposed Strategic Defence Initiative (SDI), also known as ‘Star Wars’ [3]. For the USSR to keep up, working on principles of strictly disciplined economic activity and necessary industry, its rulers placed more and more money and resources into the military in a futile attempt to keep up in the escalating arms race.

With that came economic hardship; the world had moved drastically on past the heavy industry that the socialist economics demanded be the jewel in the USSR’s crown. Whilst other countries opened up borders to Trans National Companies and placed heavier emphasis on financial and other service industries, the USSR remained dogmatically stuck in the age of coal, iron ore and gas. Only years later, the USSR, unable to afford endless rises in the military budget to keep up with the West, dissolved, with the economy in complete crisis.

The story of the USSR taught us many things about socialist economics; some of the principles found in the economic plan, such as careful interventionist policy like Five Year Plans, worked successfully if implemented properly; many accept that the implementation of state oversight in the economy can be more beneficial to its success [4]. However, what also was learnt were the startling faults with a very un-innovative style of economy. Whilst the West made money in finance, ‘capital’ economy and bought into materialism, the USSR remained firmly placed in the notion of ‘what was necessary industry would be allowed and what wasn’t necessary industry wouldn’t’. This eventually led to the sole fact that, despite rapid economic growth initially, when it curved off there was no sector of the economy that bolstered the spending rates the Russian government put into the military due to the Cold War.

The paradox of socialist economics is inevitably that, to succeed, it must adapt. To adapt, it must look for profiteering economics. To look for profiteering economics, it would be opposite to what it ideologically stands for. Here we find the inherent flaw with Socialist economics; in a world gripped by consumerism, materialism and profit, an economic package based on necessity, basic industry and the antithesis of individual profit and ownership will falter, and was shown all too majestically by the implosion of the USSR’s economy in the latter stages of the Cold War arms race.

Capitalism may not necessarily be the perfect economic ideology, but, with examples such as the USSR, do we have any other systems that provide a genuine and efficient alternative to capitalism?

Article by Simon Renwick. Edited by James Wilson.

Further Reading

[2] p.1592
[4] p.141

  • James Wilson

    Good article, but I’m suprised you did not mention the fact that one of the major problems of the USSR was that it was a dictatorship; severely limiting worker’s freedom – e.g. Stalin bascially forbade workers from just leaving their jobs. The freedom it affords it yet another advantage capitalism has!

  • Ben

    Although I am no fan of the Soviet Union and agree that it was a dictatorship I want to have a look at James’ comment that capitalism offers freedom for the workers. In Marx’s classic analysis it precisely does not do this – they must work for a subsistence or else they will die. I’m not sure about you but that doesn’t seem to me to be fulfill any real definition of freedom. Around the world there are workers who are experiencing this. There are people who have to work for the lowest wage imaginable just to survive. Although they may not be forbade from leaving their jobs by a dictator, they are effectively prohibited from leaving unless they want to starve. I think it is important to recognise how capitalism in its purest form is an extremely unfree system whilst also of course evading the siren calls of a socialist system.