Abstract
This essay surveys the seminal contribution of Gregory Grossman to comparative economics contained in his analysis of the Soviet economic system. The paper focusses on his theory of the ‘command economy,’ its nature and logic, and its inherent weaknesses, which spawned the ‘second economy,’ waves of futile ‘reforms,’ and sowed the seeds of that system's collapse.
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Notes
3 This is a theme brought up in Grossman's Slavic Review survey of the Soviet economy (1962), and more fully developed in his ‘Economics of virtuous haste’ (1983a).
4 There are a number of good basic discussions, including Grossman (1967, Chapter 6), the various editions of Gregory and Stuart (1981 – 2001), Nove (1977), and Bornstein (1985).
5 At both the January and June Plenums of the CPSU in 1987 at which Ekonomicheskaya Perestroika was announced and then promulgated, Gorbachev explicitly framed his programme in terms of a critique of the ‘command administrative’ system in terms echoing the analysis of the ‘command economy’ begun by Greg Grossman.
6 Of course, Grossman is more nuanced and cautious in making comparisons, due both to his lengthier discussion and to the rather ‘statist’ Keynesian intellectual atmosphere in the economic profession of the time. Indeed, as a look over the textbooks of the time readily reveals, far greater centralisation and national economic planning, ‘rational’ social control, was the expected wave of the future for market economies.
7 This theme is further developed in Grossman's (1983a) essay, ‘The economics of virtuous haste: A view of Soviet industrialization and institutions’.
8 In a recent paper, Grossman (2000) shows how similar considerations drove the development of an earlier, if less intensive, command economy in 19th century America, the Mormon Zion in the Utah territory of the United States, run by the ‘saints’ of the Church of Jesus Christ of the Latter-Day Saints under the leadership of the ‘prophet, seer and revelator’ at the head of the Church.
9 The emphasis on gross output leads to ‘input intensiveness’, waste, and ignoring cost considerations. Aggregation leads to persistent sub-category imbalance in assortment, quality, type, timing, etc, while units of measurement determine sub-optimization objectives, distorting implementation decisions, particularly when they are, for Material Balance reasons, input oriented. (1963, pp. 110–112)
10 The wonderful stories from the Soviet press that fill the masterful study by Nove (1977) beautifully illustrate this.
11 This is characteristic of any centralised hierarchical structure and lies at the root of the problems analysed in the ‘principal-agent’ framework. It is addressed in Grossman (1963, p. 107ff) as the problem of finding ‘the optimal degree of centralisation’.
12 Herein lies a prescient analysis of the failure of Perestroika, giving insight into much of the pain of the ‘transition’ in the 1990s.
13 That, indeed, includes all ‘reforms’ through Gorbachev's Perestroika.
14 Indeed, this might be considered a lesson of the ‘war communism’ first experience with a command economy.
15 See G Garvy (1966) for a concise yet comprehensive survey. The parenthetical terminology is Grossman's (1963; 1966, p. 217).
16 In discussing the possibility of liberalising (decentralising) small-scale investment, a GOSBANK official noted it would mean ‘disruption of proportions in confirmed plans, amendment of plans, diversion of budget funds, … and weakening of control of the economy and of finances’. (1966, pp. 225–226)
17 Indeed, complexity (eg number of interactions) can be shown to grow quadratically in the size of the economy, rendering the planners’ problem ever less soluable and planners’ decisions increasingly inadequate.
18 A partial and crudely aggregated listing of the various types of activities in the second economy, differentiated by degree of legality and with some indication of how legal fades into illegal (in following parentheses), is provided in Table A1 the Appendix.
Table a1 Types of second economy activity 19 Along with the work of a number of Soviet emigres, and a couple of Soviet statisticians, a primary source of evidence was the on-going Second Economy research project of Gregory Grossman and Vladimir Treml, housed at Duke University. For example, Treml estimated that narcotics generated some 15 billion roubles, organised religion about 10 billion roubles, and middle-man activities about 6–7 billion roubles income, while some 50% of all gasoline sales were stolen from the state.
20 See Ofer and Vinokur (1980), and also Grossman (1987, pp. 220–225; 1989, p. 94).
21 Grossman (1982b, pp. 110–111) provides clear Soviet evidence of these phenomena from the Soviet economic press and literature, including increasing failures of the the planning and allocation hierarchies and of the growth of the ‘shadow economy’ in the state sector.
22 This is the ‘cindynophobia’ of the interlinked ‘first’ and ‘second’ economies so nicely argued by Powell (1977).
23 Indeed, as Grossman (1983a, pp. 212–214) argues, efforts to impose quasi-market controls over agents, such as personal contractual liability (material’no otvetstvennoe litso) for preservation of state assets, proved counterproductive, mostly providing new incentives to manipulate and exploit state assets for personal gain.
24 The earlier Mormon command experiment (Grossman, 2000) was similarly derived from the gnostic vision of the church leadership (‘prophets’).
25 In his essay ‘Bane or Boon for Reform’ (1989), written at the height of hopes for Perestroika's success, Grossman concludes (p. 94) that ‘… the overall effect of the second economy is still against reforms’, due to the behaviours and interests it fosters and protects, which depend on the continuing existence of the command economy.
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This paper was prepared for, and presented at the ACES panel ‘Pioneers of Comparative Economics’ on 8 January 2005, during the ASSA Annual Meeting in Philadelphia. I am indebted to Michael Keren, Gary Kruger, and Herb Levine for insightful comments and suggestions. Of course, all errors and distortions remain my sole responsibility.
2 His dissertation defended in 1953 and its subsequent NBER book (Grossman, 1960) and AER paper (Grossman, 1959) studied industrial production statistics and the pricing of producers’ goods.
APPENDIX
APPENDIX
A partial and crudely aggregated listing of the various types of activities in the second economy, differentiated by degree of legality and with some indication of how legal fades into illegal (in following parentheses), is shown in Table A1 below.
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Ericson, R. Command Versus ‘Shadow’: The Conflicted Soul of the Soviet Economy. Comp Econ Stud 48, 50–76 (2006). https://doi.org/10.1057/palgrave.ces.8100132
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DOI: https://doi.org/10.1057/palgrave.ces.8100132