Valueless Goods and Social Bads in the Measurement of Soviet Output Series, 1928-1932

Valueless Goods and Social Bads in the Measurement of Soviet Output Series, 1928-1932Author(s): Paul GregorySource: Slavic Review, Vol. 39, No. 4 (Dec., 1980), pp. 608-611Published by:Stable URL: http://www.jstor.org/stable/2496501 .

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PAUL GREGORY

Valueless Goods and Social Bads in the Measurement of Soviet Output Series, 1928-1932

Professor Rosefielde has supplied a controversial reassessment of the First Five- Year Plan. My comments will perhaps be disappointingly narrow, for I shall not comment on Rosefielde's claim that the growth of heavy industry during the First Five-Year Plan was based to a surprising degree on the expansion of the GULag economy. This assertion ultimately depends upon Rosefielde's estimates of the. GULag labor force.' Other participants in this forum, or readers of Soviet Stutdies, may choose to challenge Rosefielde, but this is a topic well out of my area of expertise.

I shall deal with the more technical matter of Rosefielde's criticism of official Soviet output series for the period 1928-32 and Western recalculations thereof. The biases in the official series are well known in both the Soviet Union and the West, and prominent Soviet national income specialists make little effort to de- fend them. Official pre-1940 series use 1926/27 constant prices, which (owing to the substantial structural changes of the 1930s) apply large value weights to priority growth sectors. Western recalculations in "late" prices (of 1937 and later) reduce the 1928-40 growth rate by a factor of more than two. Soviet use of 1926/27 prices is not a statistical falsification per se; it is simply inappropriate to compare such rates with those of other countries that employ late prices. The Central Statistical Administration has yet to recalculate prewar national income in late prices and continues to repeat the old claimns of spectacular growth during the 1930s. However, I believe this issue was laid to rest long ago and is not worth reviving.

Rosefielde's critique of Western recalculations of Soviet national income during the First Five-Year Plan is more novel and deserves close scrutiny. He argues that these computations are necessarily based on physical output data and that such output data overstate Soviet achievements between 1928 and 1932. Thus, Rosefielde is attacking a sacred cow: the belief in the reliability of Soviet physical output data.

The argument is entirely logical. The First Five-Year Plan placed unreason- able demands on Soviet managers and ministers, and penalties for not mneeting these demands were severe. Soviet economnic administrators were therefore forced to exaggerate their physical output accomplislhnments by various devices to simu- late plan fulfillment. Rosefielde maintains that the checks and balances thought to prevent such things were made ineffective by a colnmunity of interests of

1. Steven Rosefielde, "An Assessment of the Sources and Uses of Gulag Forced Labor 1929-1956," Soviet Studies, 33, no. 1 (January 1981).



Valueless Goods and Social Bads 609

managers, ministers, and party officials, all of whom had a large stake in demonstrating plan fulfillment.

Rosefielde's evidence of the unreliability of physical output statistics is drawn from Solzhenitsyn's Gulag Archipelago. The evidence is primarily anecdotal and less than ideal for economlic analysis. It applies to practices within the GULag system, not to the economy at large. Yet similar pressures for false reporting should have been present in the noncamp economy, although possibly to a lesser degree. Economists have used anecdotal evidence of this sort before. Therefore, Solzhenitsyn's material should not be rejected for this reason alone.

Solzhenitsyn's is not the first evidence of ttkhta. Western studies of Soviet management have revealed similar practices for the noncamp economy. The reporting of nonexisting and overvalued goods is documented in the Soviet press and in Western studies. The new wrinkle provided by Rosefielde and Solzhenitsyn is the emphasis on social bads and valueless goods produced by the GULag economy. By Rosefielde's account, the GULag sector was a large proportion of the overall economy, and such production could have a large macroeconomic impact.

Let me deal with valueless goods and social bads separately. The Rosefielde- Solzhenitsyn example of the former is the Belomor Canal, a project that required vast economic resources (principally GULag labor) yet yielded few economic benefits. The Belomor Canal entered Soviet national accounts at the value of resources (in 1926/27 prices) consumed in its construction, not at the present value of the income stream that its builders expected from it (presumed by Rose- fielde to eqtial zero). Rosefielde contends that the Belomor Canal should have been written off, allowing it to enter gross, but not net, output.

Is this view correct? One can cite similar examples of public work projects in capitalist countries that consume vast resources, yet whose discounted present value would be quite low. They too would be valued in national accounts just like the Belomor Canal (a buried political mistake). With existing national account- ing systems, it would be difficult to adjust net product for public works that have not paid off. Both capitalist and communist economies suffer from this type of "distortion." Perhaps the incidence was higher in the Soviet Union during the First Five-Year Plan than in other countries, but this statistical problem is by no means unique to the Soviet economy.

Rosefielde's argument against including social bads (the construction of camps, the transportation of prisoners) is reminiscent of parallel discussions in the West that advocate the subtraction of social bads like pollution from net product. In the case of the Soviet Union, a fundamental issue of welfare eco- nomics-raised years ago by Abram Bergson-is involved: Is it reasonable to assess Soviet economic performance in terms of the preferences of Soviet political authorities (in this case, Stalin), or should the preferences of some other group be used? Planners' preferences dictated a large secret police force, the construction of GULag camps for political prisoners, and so on. Should these items be ex- cluded from net product? If one were to impose one's own preferences (or those of the Soviet population), a zero or negative weight would likely be assigned to such activities. However, the Soviet economy was in fact directed by a party leadership whose preferences did indeed prevail. To exclude particular planners' preferences requires treading on shaky ground. It could be argued, for example, that schools teaching communist doctrine should not be counted in net product or that even some heavy industrial products should be netted out.



610 Slavic Review

Rosefielde's basic argument is that growth rates calculated from physical output data must be adjusted downward because of the presence of tukhta. As I have shown, tukhta may not have been as significant as Rosefielde suggests (if one continues to include things like the Belomor Canal and prison camp construction in net output), yet there may have been a significant amount. Just how much tukhta existed is still the crucial question. I believe that Rosefielde would be the first to admit that his suggested tukhta adjustments are hypothetical, for non- quantifiables, such as quality deterioration, outright statistical falsification, and so forth, cannot be measured. Yet he does not duly emphasize the hypothetical nature of his adjustments in his article, and the reader is left with the impression of a firmer scientific footing than actually exists.

For the sake of argument, however, let us assume that the "true" tukhta adjustment lies .within the 10-20 percent band used by Rosefielde. If this were true, in what manner would received doctrine concerning the First Five-Year Plan be altered? Let us dismiss the official Soviet version as unrealistically optimistic and concentrate on Western recaltulations. As Rosefielde notes, estimates by Nutter, Powell, Moorsteen, Johnson, Kahan, and others suggest a near doubling of industrial durables, but a stagnant consumer economy (including agriculture). On a per capita basis, the standard of living suffered a slight decline. One could argue on the bright side that the Soviets succeeded in building up their heavy industry base with only a small sacrifice of achieved consumption levels.

This assessment is quite sensitive to the tukhta adjustment. Using 1950 weights, a 10 percent adjustment reduces aggregate growth from 3.8 percent to 1.5 percent. At adjustments of 15 percent and above, aggregate growth becomes negative. For consumer goods alone, the decline in real output is from 11 percent (10 percent tukhta) to 21 percent (20 percent tukhta). These adjustments significantly affect evaluation of the First Five-Year Plan. I do not rule out the possibility that adjustments of 10-20 percent are called for. Rosefielde's evidence, however, is not firm enough to make a strong case for any particular tukhta adjustment. His contribution lies in raising the possibility that established estimates have overstated aggregate growth between 1928 and 1932 and understated the degree of irnmiseration of the Soviet population during the First Five-Year Plan.

Finally, the First Five-Year Plan is too short and atypical a period for analysis, particularly if one addresses the question, "Was Stalin really necessary ?" The empirical literature is in agreement that the First Five-Year Plan (involving Vast disruptions, shifting priorities, and absorption of large numbers of unskilled workers) was a period of weak economic performance relative to the Second Five- Year Plan. Western studies by Powell and Moorsteen find negative rates of growth of factor productivity during 1928-32 and rapid rates of growth during 1932-37.2 Moorsteen and Powell calculate that real GNP increased by 10 percent during the First Five-Year Plan and by 58 percent during the Second Five-Year Plan.3 Thus, it seems that the payoffs of the Stalin policy of forced industrialization were reaped only during the Second and Third Five-Year Plans. Moreover,

2. Richard Moorsteen and Raymond Powell, The Soviet Capital Stock 1928-1962 (Homewood, Ill.: Richard D. Irwin, 1966), pp. 268 and 622. Raymond Powell, "Industrial Production," in Abram Bergson and Simon Kuznets, eds., Economic Trends in the Soviet Union (Cambridge, Mass.: Harvard University Press, 1963), p. 172.

3. Moorsteen and Powell, Soviet Capital Stock, p. 622.



Valueless Goods and Social Bads 611

empirical analysis of Soviet economic performance is on firmer ground by 1937, Bergson's first benchmark after 1928. Cited estimates for 1932 employ numerous interpolations between 1928 and 1937 and thus tend to smooth out annual time series. Nor is the profession unanimous on 1928-32 performance. Jasny's estimates of immiseration, for example, are even more dramatic than Rosefielde's 20 percent tukhta adjustments. Jasny contends that living standards were almost halved between 1928 and 1932.4

I recommend that Rosefielde broaden his horizons to ask whether his criti- cisms of growth statistics apply to the Second and Third Five-Year Plans as well. It would appear that the same pressures for tukhta would have been present during the mid- and late-1930s, especially with the combination of Stalinist terror and overambitious planning.

4. Naum Jasny, Soviet Industrialization, 1928-1952 (Chicago: University of Chicago Press, 1961), p. 447.



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Valueless Goods and Social Bads in the Measurement of Soviet Output Series, 1928-1932