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Wednesday, May 30, 2012

Red Plenty: Inside the Fifties’ Soviet Dream

Cultural historian Francis Spufford’s Red Plenty is a novel about the reform of the planned economy in the Soviet Union during the years of the Khrushchev thaw. It is one of the oddest books written about economics—a fictional approach peopled by computer researchers, planning bureaucrats, Communist Party apparatchiks, and factory managers. While fact and fiction in Red Plenty can initially be difficult for the reader to distinguish, the fictional parts breathe life into the economic reasoning. The author provides an extensive set of notes explaining the historical facts and also where his poetic license diverges from them.

Spufford’s vivid storytelling—the book is very intriguing historical fiction—explores this counterfactual: Could the Soviet Union’s planned economy have delivered plenty to its citizens as well as a market economy would? The idea of prosperity under communism certainly did not seem as preposterous in the late 1950s as it does today. The Soviets took the lead in the space race, and their official statistics showed an annual 5 percent growth in GDP, apparently higher than the United States’ at the time.

The Soviet economy was, despite those growth statistics, enormously ineffective, consuming far too much capital for little output. Communist Party leader Nikita Khrushchev was prepared to open up the economy to reforms and received new ideas from economist Leonid Kantorovich and computer engineer Sergey Lebedev. They are among the real people the reader encounters. Of course, their dialogues are imaginary, but they’re also believable.

Their idea was to replace centrally determined production quotas with a pricing system based on opportunity costs. Linear programming, a mathematical method that could supposedly determine the optimal allocation of resources, would be used instead of bureaucratic output goals. The new, more powerful computers would perform all the necessary calculations. Kantorovich, incidentally, was the only Soviet to receive the Nobel Prize in economics.

But could it work? Readers of The Freeman will recognize here the arguments from the socialist calculation debate in the first half of the twentieth century. Economist Oskar Lange stated that prices are merely rates of exchange of one good for another. Whether they are provided by a central planner or by a market is irrelevant, he maintained, as long as managers of State enterprises were instructed to act as cost-minimizers. “Market socialism” would work. So said Lange’s theory, anyway.

Reality caught up with theory in the Novocherkassk hunger riots in 1962, a key episode dramatized in the book. The introduction of a price mechanism also led to a reduction of food subsidies, and citizens suddenly were made aware of the true extent of their deprivations. The riots led to a coup that ousted Khrushchev; afterward, the conservative Leonid Brezhnev opted for stagnation of the economy and paying the bills by public debt and the export of oil.

Spufford’s story shows why socialism (even “market socialism”) is bound to fail. That great unpredictable—human nature—will foil the best bureaucratic plans. Besides the food riots, central planning led to many other debacles Spufford includes, such as the environmental disaster of the Aral Sea (which dried up owing to the diversion of water for collective farms) and the demise of the Soviet computer industry (wiped out by a decree from the Ministry for Radio Production).

Reading Red Plenty, one has a hard time seeing how market socialism’s practical shortcomings would not lead people to doubt the system’s underlying ideas. That goes for the author too. Despite awareness of its failure, however, he still seems to be gripped by the fascination so many intellectuals have with Kantorovich’s market socialism theory. Without going into detail, Spufford seems to imply that it could be done right, in spite of all the arguments and historical evidence he presents to the contrary.

Planned economies are mostly gone, but Red Plenty tells us a lot about the ideas behind the political steering and commandeering of resources in the 21st century, ideas that are still very much alive. Politicians may tolerate or even use market mechanisms, but only if those mechanisms achieve certain politically predetermined results. This is particularly visible in the subsidies for “green jobs” in Europe and the Solyndra scandal in the United States.

The last Soviet leader, Mikhail Gorbachev, put it right, saying, “The most puzzling development in politics during the last decade is the apparent determination of Western European leaders to re-create the Soviet Union in Western Europe.” Red Plenty inadvertently gives an explanation for this lingering attachment. The free market threatens the power of the politicians by taking away their control over society. They cherish control, not plenty for the masses.