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Myth Of U.S.S.R.'s Strong Economy -
Media 'Experts' Often Believed Soviets'
Crude Propaganda

Once upon a time, the Soviet economy was healthy and strong. The Soviet people were well-fed and happy. They drove tanks and tractors, if not cars. They beat the Americans into space. They were catching up to the West in wealth and power.

All they needed were just a few more five-year plans and. . Alas, it was just a dream. Or a fairy tale, retold for decades by Soviet propagandists and Western sympathizers, and believed by a lot of people who should have known better.

The collapse of the Soviet Union in 1991 ended perhaps the greatest international fraud of the 20th century. Even the CIA was fooled into overestimating the strength and size of the Soviet economy, and underestimating its military spending.

"No one now really believes that the Soviet economy functioned in any orderly fashion," said Richard Ebeling, head of the business and economics department at Hillsdale College in Michigan. "Everybody accepts the fact that the official statistics were distorted for political propagandistic reasons and were far from the actual facts of the case."

But for 70 years, the mirage of Soviet success inspired hope and confidence in socialists around the world. Many Westerners believed with President Franklin Roosevelt that communism had done much good for its people. The Soviets, it seemed, had made socialism work.

As late as 1989, in the 13th edition of his best-selling college textbook "Economics," Paul Samuelson wrote, "The Soviet economy is proof that, contrary to what many skeptics had earlier believed, a socialist command economy can function and even thrive."

But the Soviet economy didn't thrive. It collapsed just two years later, leaving the Soviet people worse off in many ways than they had been under the last czar. Take meat consumption.

The average Russian worker in 1913 ate about as much meat as his American counterpart - just over 70 kilograms per year. In 1970, he ate only 48 kilograms compared with 118 kilograms for American workers.

In 1913, Russian workers worked just 50% longer than Americans for a pound of meat. By 1985, they were working 1,000% longer, according to a 1988 article by Soviet economist A.S. Zaychenko in the journal of the U.S.S.R. Academy of Sciences.

How could the West miss such failures? The West had a lot of help from the Soviets themselves. The Soviets didn't invent the "Potemkin village." The 18th century Russian Prince Grigori Potemkin did. He built prosperous-looking villages that were little more than facades to convince Catherine the Great that the Crimea was more flourishing than it was.

The Soviets practiced the same deceit on sympathetic visitors, leading them on carefully staged tours of the "worker's paradise." Returning from Russia in 1919, the American muckraking journalist Lincoln Steffens declared famously, "I have been over into the future, and it works."

The early Soviet Union attracted quite a few admiring fans, including famous British socialists like novelist H.G. Wells and playwright George Bernard Shaw. In 1935, two founding members of Britain's Labour Party, Sidney and Beatrice Webb, wrote a flattering book titled "Soviet Communism: A New Civilisation?" Later editions omitted the question mark.

The Webbs and others painted Russia as a once-backward country rapidly industrializing under a forward-looking Stalin. At the time, the Soviet Union was indeed industrializing, but it was also starving to death.

An estimated 14 million Soviet people died from famine in the early 1930s when Stalin collectivized all farming. But Walter Duranty, Moscow correspondent for The New York Times, dismissed the famine as "an exaggeration of malignant propaganda."

In 1933, Duranty reported "village markets flowing with eggs, fruit, poultry, vegetables, milk and butter at prices far lower than in Moscow. . (A) child can see this is not famine but abundance."

That same year Duranty was given a Pulitzer Prize for stories on the Soviet economy "marked by scholarship, profundity, impartiality, sound judgment and exceptional clarity."

After World War II, the West was astounded by Soviet advances in military and space technology. The Soviets put the first man-made satellite into orbit in 1958 and the first man into space in 1961.

That year, Soviet leader Nikita Khrushchev boasted they would out-do the U.S. economically by 1980. Many in the West were ready to believe him. Socialist economics had gained ground in the West. Polish economist Oskar Lange had seemed to prove that "market socialism" could work using various mechanisms as substitutes for prices.

This contradicted the market-based economics of Ludwig von Mises and Friedrich Hayek. "The profession thought that Mises and Hayek had been defeated," said Ebeling of Hillsdale College.

The fondness of mainstream economists for socialism is seen in Samuelson's "Economics." In the 10th edition, published in 1976, Samuelson wrote, "It is a vulgar mistake to think that most people in Eastern Europe are miserable." Samuelson put the Soviet gross national product at "between one-half and three-fourths of ours in size." Graphs in the 10th and 11th editions showed Soviet GNP surpassing U.S. GNP around 2010, based on "best expert opinion."

A graph in the 12th edition, published in 1985, showed the Soviet economy growing 4.9% a year since 1928 compared with 3% a year for the U.S. since 1929. By the 1970s, however, there were signs that all was not well in the worker's paradise. The Soviet Union began importing vast amounts of U.S. grain. It was also borrowing heavily from foreign sources.

Life expectancy was declining, and infant mortality was rising. By the early 1980s, 16% of live births in the U.S.S.R. were physically or mentally defective, says Herbert Meyer, former vice chairman of the National Intelligence Council.

Under President Reagan, Meyer worked for CIA Director William Casey as captain of what became known unofficially as Team B. Team B offered dissenting opinions on the CIA's official assessments.

The CIA put the Soviet economy at one half the size of the U.S. economy. Soviet military spending was said to be 16% of GNP. Team B put the Soviet economy at one quarter of the U.S. economy and Soviet military spending closer to 25% of GNP.

Team B provided the basis for Reagan's strategy for winning the Cold War by undermining the Soviet economy. "It's probably the only case in history where a strategic policy was set based upon an economic intelligence analysis, and it actually worked," Meyer said.

The strategy included a military buildup, exports control and the Strategic Defense Initiative to convince the Soviets that they couldn't keep up economically and technologically.

At the same time, the U.S. conspired with Saudi Arabia to drive down the price of the Soviet's chief export - oil. More than half of Soviet export earnings came from oil sales to the West. "As the price of oil dropped, their hard currency earnings plummeted, and that was a major economic blow," Meyer said.

It was a controversial strategy - "mindless nonsense," wrote Harvard's John Kenneth Galbraith in 1984. Galbraith and others continued to praise Soviet progress, downplaying Soviet problems as no worse than the West's.

Lester Thurow of the Massachusetts Institute of Technology wrote in 1983, "While no economist would trade the American economy for the Russian, it is not at all obvious that the crisis there is worse than the crisis here."

When Marshall Goldman of Wellesley College in Massachusetts published his book "USSR In Crisis" in 1983, he faced a "truth squad" of critics who traveled to local meetings of the American Association for Slavic Studies to denounce it. "They weren't communists," but they were anti-Reagan, he said.

Meyer said the focus on Soviet weakness also distressed many Cold Warriors. They feared that a weak U.S.S.R. would not appear threatening enough to warrant the military buildup. Judy Shelton, author of "The Coming Soviet Crash" (Free Press, 1989), recalls being pulled aside at a conference by a CIA official, who asked her privately, "Why are you trying to cause trouble?"

Shelton said many Western economists didn't see the crash coming because they tended to look at the Soviet Union from a Marxist perspective, focusing on Marxist measures of success such as employment and production.

"Western economists would tell you the same things that Soviet economists would tell you - whether or not Georgia made its quota of wheat - and that really wasn't the issue," she said. "It was really a finance story."

In the mid-1980s, Shelton analyzed Soviet financial statements and found that the Soviets were heavily in debt, and sinking deeper - with the help of Western banks. Soviet debt jumped 50% in two years, 1985 and 1986. Why did they need the money?

"Their books showed that they always ran a perfectly balanced budget. That should have been a tip-off. It was too perfect," Shelton said. "In fact, they were dead broke. It was really a case of bankruptcy."

In 1988, the Soviets admitted for the first time running a deficit, estimated at $58 billion for the preceding year. Privately, Soviet economists put the figure at three times that number, Shelton learned.

Reagan's strategy had worked. At its end in 1991, the Soviet Union was living off Western loans. That couldn't go on forever, and it didn't.


Brian Mitchell
Investor’s Business Daily
December 10, 1999


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