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Life Cycle of the Centrally Planned Economy: Why Soviet Growth Rates Peaked in the 1950s

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  • Vladimir Popov

    () (New Economic School, Moscow)

Abstract

The highest rates of growth of labor productivity in the Soviet Union were observed not in the 1930s (3% annually), but in the 1950s (6%). The TFP growth rates by decades increased from 0.6% annually in the 1930s to 2.8% in the 1950s and then fell monotonously becoming negative in the 1980s. The decade of 1950s was thus the “golden period” of Soviet economic growth. The patterns of Soviet growth of the 1950s in terms of growth accounting were very similar to the Japanese growth of the 1950s-70s and to Korean and Taiwanese growth in the 1960-80s – fast increases in labor productivity counterweighted the decline in capital productivity, so that the TFP increased markedly. However, high Soviet economic growth lasted only for a decade, whereas in East Asia it continued for three to four decades, propelling Japan, South Korea and Taiwan into the ranks of developed countries. This paper offers an explanation for the inverted U-shaped trajectory of labor productivity and TFP in centrally planned economies (CPEs). It is argued that CPEs under-invested into the replacement of the retiring elements of the fixed capital stock and over-invested into the expansion of production capacities. The task of renovating physical capital contradicted the short-run goal of fulfilling plan targets, and therefore Soviet planners preferred to invest in new capacities instead of upgrading the old ones. Hence, after the massive investment of the 1930s in the USSR, the highest productivity was achieved after the period equal to the average service life of fixed capital stock (about 20 years) – before there emerged a need for the massive investment into replacing retirement. Afterwards, the capital stock started to age rapidly reducing sharply capital productivity and lowering labor productivity and TFP growth rates.

Suggested Citation

  • Vladimir Popov, 2010. "Life Cycle of the Centrally Planned Economy: Why Soviet Growth Rates Peaked in the 1950s," Working Papers w0152, Center for Economic and Financial Research (CEFIR).
  • Handle: RePEc:cfr:cefirw:w0152
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    References listed on IDEAS

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    1. Weitzman, Martin L, 1970. "Soviet Postwar Economic Growth and Capital-Labor Substitution," American Economic Review, American Economic Association, vol. 60(4), pages 676-692, September.
    2. Yan Wang & Yudong Yao, 2001. "Sources of China's economic growth, 1952-99 : incorporating human capital accumulation," Policy Research Working Paper Series 2650, The World Bank.
    3. Young, Alwyn, 1994. "Lessons from the East Asian NICS: A contrarian view," European Economic Review, Elsevier, vol. 38(3-4), pages 964-973, April.
    4. Sergei Guriev & Barry W. Ickes, 2000. "Microeconomic Aspects of Economic Growth in Eastern Europe and the Former Soviet Union, 1950-2000," William Davidson Institute Working Papers Series 348, William Davidson Institute at the University of Michigan.
    5. Easterly, William & Fischer, Stanley, 1995. "The Soviet Economic Decline," World Bank Economic Review, World Bank Group, vol. 9(3), pages 341-371, September.
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    Cited by:

    1. Popov, Vladimir, 2014. "Can Uzbekistan Economy Retain Its High Growth Rates? Scenarios of Economic Development in 2015-30," MPRA Paper 59735, University Library of Munich, Germany, revised 20 Oct 2014.
    2. Vladimir Popov, 2010. "Development theories and development experience: half a century journey," Working Papers w0153, Center for Economic and Financial Research (CEFIR).
    3. Vladimir Popov, 2009. "Why the West Became Rich before China and Why China Has Been Catching Up with the West since 1949: nother Explanation of the “Great Divergence” and “Great Convergence” Stories," Working Papers w0132, Center for Economic and Financial Research (CEFIR).
    4. Popov, Vladimir, 2014. "Socialism is dead, long live socialism!," MPRA Paper 54294, University Library of Munich, Germany.
    5. Numa Mazat, 2016. "Structural Analysis Of The Economic Decline And Collapse Of The Soviet Union," Anais do XLIII Encontro Nacional de Economia [Proceedings of the 43rd Brazilian Economics Meeting] 029, ANPEC - Associação Nacional dos Centros de Pós-Graduação em Economia [Brazilian Association of Graduate Programs in Economics].
    6. Fidel Aroche Reyes, 2014. "The Greek Economic Structure in the 2000's: A Road to Crisis?," South-Eastern Europe Journal of Economics, Association of Economic Universities of South and Eastern Europe and the Black Sea Region, vol. 12(1), pages 35-64.
    7. Popov, Vladimir, 2014. "Puzzles of public opinion: Why Soviet population supports the transition to capitalism since the 1980S," MPRA Paper 60915, University Library of Munich, Germany.
    8. Popov, Vladimir, 2010. "The Long Road to Normalcy," WIDER Working Paper Series 013, World Institute for Development Economic Research (UNU-WIDER).
    9. Popov, Vladimir, 2014. "Загадки Общественного Мнения: Почему Советское Население Поддерживает Переход К Капитализму С Конца 80-Х Годов
      [Puzzles Of Public Opinion: Why Soviet Population Supports The Transition To Capitalis
      ," MPRA Paper 57842, University Library of Munich, Germany.

    More about this item

    JEL classification:

    • P17 - Economic Systems - - Capitalist Systems - - - Performance and Prospects
    • P20 - Economic Systems - - Socialist Systems and Transition Economies - - - General
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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