Robert Allen has done what few people have attempted - defending Soviet, in particular Stalinist, industrialization policy from the viewpoint and with the methodology of orthodox neoclassical economics. In so doing he reacts particularly against the works of Paul Gregory, the main academic defender of the thesis that the Czarist system would have developed Russia faster and better than the USSR did. Allen takes great pains to refute this position.
Allen shows that the Stalinist policy of industrialization followed the strategy laid out by Preobrazhensky, namely to use terms of trade between agriculture and industry to use the agricultural surplus for investment in heavy industry. All the heavy industry production would then be reinvested in that heavy industry, leading over time to a very fast and strong development of industrialization in the USSR. Although this meant in the short term that living standards, as measured by consumption of consumer goods, would increase but little (and even drop during certain periods), in the long run the result would be that the industrial capacity so built up could be used for production of consumer goods eventually at a much higher level than would otherwise have been the case.
This has always been much contested by most economists, both socialist and anti-socialist, especially since the system of NEP seemed to perform decently well and created much more stability than the Stalinist heavy industry planning did. Nonetheless, Allen shows through modelling the different factors involved in simulations of alternative paths that the Preobrazhensky strategy was entirely correct, and indeed had the required results. In fact, Allen argues contrary to most historians of the Soviet 1930s that living standards generally did not even drop during this period, with the exception of the years of collectivization of agriculture.
This collectivization is also a subject he addresses, where he, again against almost everyone else, finds that it had a slight positive effect, because it made the marketing (in the sense of bringing into circulation) of agricultural produce much larger proportionally and much easier. This solved the recurring problem in the early USSR of ensuring the peasantry sold sufficient of their produce to feed the large urban population, despite the living standards of the Soviet peasants being low. As Allen shows, there was also a great excess of manpower in Soviet agriculture, so the mechanization that accompanied collectivization allowed millions of redundant peasants to move to the cities. It is this generation of peasants-turned-cadres that would form the main basis of support for Stalin and his policies, as is confirmed by Fitzpatrick and others. Of course, given the enormous human cost of collectivization and the famine that followed it, it is still dubious whether the undertaking was overall worth it. In his simulations Allen also traces alternatives such as industrialization without collectivization, which performs slightly worse, a continuation of NEP, which performs significantly worse but still well, and a 'capitalist path' where unemployment was possible and every individual company had to be profit-making; as one could expect, this path works by far the worst. In fact, because the wheat and railroad booms that buoyed the Czarist government in the period 1905-1914 would have ended in the 1920s, a continuation of this road would have brought Russia no further than the level now shown by Mexico or Argentina.
The final part of this book contains a much smaller and less detailed discussion of the failures of the Soviet planning models in the late 1970s and the 1980s. The author here makes various subtle and interesting arguments. Firstly, he points out that investment put into military production and upkeep was from a purely economic point of view practically entirely wasted, mostly because it came at the expense of investment in other types of heavy industry than armaments, which the USSR dearly needed. The enormous losses of WWII also contributed here, with much capital being destroyed. A second result here was the enormous costs in manpower for the USSR of their almost Pyrrhic victory in WWII - the end of large quantities of newly free labor coming in from the countryside limited the expansion possibilities of all labor-intensive industry, which the USSR had hitherto relied on. Here again appears as useful the model of Soviet economics developed by Abram Feldman, which explored the interaction between capital and labor and how extra capital in a poor country like the 1920s USSR could lead to a positive feedback loop effect if invested in heavy industry (i.e. production of more 'capital'), since every unit of capital in such a situation led to vastly larger increases in output than every new unit of labor. From the late 1960s on labor, however, became the main constraint in output, and the old Preobrazhensky accumulation strategy no longer worked.
The main question is of course why the Soviet government did not adequately respond to this, and here Allen is for the first time severely critical: he identifies a number of major planning and investment errors on the part of the Brezhnev leadership. The most important of these is the wasteful retooling and upkeep of old industry where the production of new modern industry would have been more efficient, and secondly extremely wasteful unproductive investment in raw materials production in Siberia. This latter part was the result of the minerals and oil production in European Russia, the Ukraine etc. being largely depleted, so expansion had to be sought in Siberia, where costs were vastly higher. Coal production in the Donbass region peaked in 1976, after which the Soviet government was forced to massively invest in lignite (brown coal) production in Krasnoiarsk. Brown coal is not very efficient and the costs of operating in a vast desolate area as central Siberia are high, so that productivity of capital invested plummeted. Much the same applied to oil. Only natural gas production was something of a success story, which can still be seen today in Russia's position as major exporter of natural gas to the European continent.
Allen negatively compares this autarkic development strategy to that pursued by Japan, which had much fewer natural resources after WWII, but nonetheless greatly expanded its industrial production in these sectors by importing the raw materials. Drops in transport costs after the war made this profitably possible. Of course, the USSR, as Allen acknowledges, had political reasons for indigenous development even at higher costs, where Japan could operate entirely as an American vassal. It must be said though that Soviet energy use was very high per $1000 of GDP, and that conservation programs and saving the natural environment mostly failed due to the antique state of much of Soviet industry and the enormous scale of its factories. Short term "shock" responses to these problems by Brezhnev and successive governments only made the situation worse. Here Allen points to systematic deficiencies in proper cost accounting and saving, which had (correctly) not been a priority in the 1930s, but had to become one in the 1970s. The Soviet political system at that time was not very well-suited to adapt to this, and Brezhnev et al.'s 'dropping the ball' on these major economic reform issues played a large part in the fall of this system. Allen emphasizes though that it was not planning as such that failed, just that the plans were bad. These analyses are also along the lines of those provided in Paresh Chattopadhyay's excellent study of Soviet economic policy.
Overall this book is an excellent and highly stimulating discussion of Soviet industrialization programs and their beneficial effects as well as their failures. It is decidedly non-political and does not enter into any ideological question, but despite its thorough orthodoxy in methods, it is nonetheless very sensible - indeed Allen shows that such methods CAN be used in an intelligent manner when one really wants to. It must also be mentioned that poor Preobrazhensky had little benefit from the success of his strategy: he was shot in 1937.
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