The economic legacy of October 1917

Vladimir Ilyich Lenin addressing a crowd during the Russian Revolution

By Mark Buckley

The Russian Revolution of October 1917 is an event of world-historic importance. It was the first time in history that the working class and its allies seized political power and held onto it for long enough to impact the entire world in a sustained way.

The defeat of Nazism, the post-World War II decolonisation, the overturning of capitalism in Eastern Europe and the establishment of the ‘welfare state’ social safety net in Western Europe as well as the victorious socialist revolutions in Yugoslavia, China, Cuba and Viet Nam were all made possible by October.

However, most commentary and assessments of the Russian Revolution take as their narrow focus the events in Russia and then the USSR alone. Within these confines, the ‘damning’ claim is made that ultimate economic failure must be laid at the door of the Revolution itself. This is both faulty logic and faulty economics.

Logically, all new human endeavours present new challenges and unknown risks. But no-one suggests that the high death toll involved in early human flight, or the environmental damage created by the internal combustion engine means that they should never have been attempted. These were the negative consequences of scientific revolutions, where those negative consequences have to be overcome even as the new productive capacity is harnessed.

Similarly, human beings are still coming to understand the science of socialist revolution and socialist construction. An important and potentially decisive factor is that socialism like all new social formations begins within the body of its predecessor and is obliged to live alongside it until the latter is finally forced to disappear.

Yet even on the strictest national economic grounds the eventual overthrow of the Soviet Union does not all negate its great contribution to the economic development of Russia.

Soviet Union’s economic balance sheet

The ultimate verdict on any economic system is whether it is able to provide a lasting improvement in the living standards of the population as a whole. On this count, the Soviet Union was a significant success.

Contrary to widespread propaganda and myth-making from the bourgeois economists and red-baiters, the Soviet Union made greater economic advances than most contemporary advanced capitalist countries. Even now, after it has been overthrown, its legacy has raised Russia and the former soviet republics up to a much higher relative level than most of their counterparts.

The relative performance of the former republics of the USSR is shown in Chart 1 below, alongside the UK and US for reference.

Chart 1. US, USSR, UK GDP 1913 to 1992

For significant periods the USSR performed more strongly even than the US, even though the US benefited from being the leading capitalist power which ensured its dominance of the world markets. Separately, for the entire period from 1913 to 1992 the USSR outperformed the UK economy and even now remains significantly larger than the UK.

Selected key data from Angus Maddison, the leading authority on global GDP growth rates, is reproduced in the table below. The Maddison data uses an international US$ measure of Purchasing Power Parities (PPPs).

Selected dates for GDP of the USSR, UK and USA, US$ (Int’l Geary-Khamis), millions

Source: Maddison

As the table shows, the devastation of the World War I, civil war and invasion by a multitude of foreign armies meant that it was 1928 before the USSR regained its pre-War GDP level. From 1928 onwards, until 1980 the USSR grew more strongly than the USA. The USSR grew more than 6 times over that period while the US grew more than 5 times. In 1928 the economy of the USSR was equivalent to 29 per cent of the USA economy. By 1980 the USSR’s economy was 40 per cent of the size of the US economy.

However, the USSR economy effectively stagnated in the 1980s and so grew much more slowly than US economy, even though the US itself was slowing. There are a number of factors behind this decline and eventual collapse, discussed below.

Even so, the relative performance of the USSR and UK economies is striking. In the pre-World War I period the UK and what became the USSR economies were broadly similar in size, $225mn and $232mn respectively in the Maddison data. Despite the far greater devastation of both world wars on the Russian/Soviet Union economy, they were still broadly similar in size in 1945. The outperformance of the economy of the USSR thereafter was exceptionally strong, so that by 1988, a period of little more than 40 years, the economy of the USSR was more than twice the size of the UK economy.

Now, even after the collapse of the Soviet Union in 1992, the Russian economy is still greater than that of the UK, measured on a PPP basis. This is an indicator of the enduring positive economic legacy of October 1917.

Stagnation and collapse

The eventual collapse of the Soviet Union is not the final word on the legacy of the Russian Revolution. As shown above, that legacy was a startling outperformance compared to the UK economy which began the period in 1913 as one of the world’s great economic powers.

The same is true of the relative performance versus Germany rightly regarded as one of the world’s most productive capitalist economies (as well as France, not shown). The relative performance of the German and USSR economies is shown in Chart 2 below, and includes the period after the collapse of the Soviet Union and up to the Great Financial Crash of 2008.

Chart 2 USSR, German GDP 1913 to 2008

It is clear that the USSR performed at least as well as some of the main capitalist powers, and substantially better than fading ones like the British economy. Even so, the entire system was overthrown after 1991, leading to the largest peacetime collapse in GDP and living standards in modern history. The Russian and other economies have only recently recovered their pre-1992 level.

Of course, the German economy was also utterly devastated by the outcome of World War II. But throughout the whole period Germany remained a capitalist country. Hitler presided over a capitalist country. The economic collapse of the Soviet Union only occurred after its overthrow as an economy overwhelmingly in state hands, where the private sector was an insignificant part of the economy. It would be better to argue that Nazi devastation was a part of Germany’s capitalist development than economic collapse was a part of soviet socialism.

Planning and the socialisation of production

Economic planning has the potential to be vastly superior to the anarchy of capitalist production for profit, with its recurrent booms, busts, shortages and bubbles.

But the most powerful force in developing productive capacity is what Adam Smith identified as the division of labour and was later refined and developed by Marx as the socialisation of production (the development centred on the inclusion of productive capital, or ‘dead labour’ as a decisive factor in the socialisation of production along with living labour power).

This can be seen in the capitalist world. If one producer is able to purchase the most up-to-date and efficient machinery and a competitor relies on squeezing their own profit margins to compensate for the lack of top quality machinery, the less efficient producer cannot survive for long.

The USSR was obliged to live alongside capitalism, and in world markets dominated by it. Capitalism still dominated world markets then, and is likely to continue to do so for a period even when, as can be confidently expected, further socialist countries arise alongside those that already exist. The economies where the working class is in power will still have to exist in the hostile environment of a world dominated by US imperialism, and where the US has a huge productivity advantage. In general, for each new attempt at socialist construction, the accommodation with capitalism domestically is necessarily in proportion to the capitalists’ dominance of world markets.

One of the great myths that has arisen on Soviet economic policy making was that the elimination of the private sector was either necessary or desirable in the early stages of socialist construction. This myth arose only because it later became policy under Stalin. The first five year plan under Stalin explicitly refers to production in mixed ownership, joint ventures (between the state and the private sector), concessions (to foreign capitalists) and privately-owned Russian firms. The elimination of the private sector was a later policy, not pursued by the Bolsheviks, or even central to Stalin’s initial plans.

The emerging policy of ‘Socialism in One Country’ was essentially a politically motived measure, driven by Stalin’s desire to eliminate hostile forces, perceived or otherwise. This entailed the removal of all forces depending on or linked to the private sector, in the countryside, in industry and in foreign trade. It was an attempt to skip over a historical process of economic development as analysed by Marx by decree.

This administrative measure did not and could not eliminate the world market dominated by imperialism. But for a period between the wars this deviation from Marx’s analysis in the development of the Soviet economy did not obviously damage it on a relative basis, to the contrary, as the capitalist powers themselves slipped into disastrous protectionism. It became apparent that, in these circumstances, Socialism in One Country was indeed superior to ‘capitalism in one country’.

Yet in the post-World War II period, the capitalist world was reorganised and reintegrated under the leadership and dominance of the US. With many intervening twists and turns, that dominance later meant that in the 1980s the US was able to call on the surplus resources of the other capitalist powers in order to directly compete with the USSR – primarily using the savings of Japan. The chosen terrain of that competition was an arms race. The USSR lost the arms race in the way it would have lost almost any direct struggle with the US based on resources and technology, when the US integration in and dominance of the world market meant it was able to command vastly greater resources.

Socialism in One Country was not the policy of Lenin and the Bolsheviks. Lenin had earlier argued that new soviet republic must take advantage of the both the capital and expertise of the capitalists in order to consolidate its own power. Lenin put it this way: ‘We produce only 100bbl of oil and are facing disaster. If we provide a concession to a capitalist who produces another 100bbl of oil, and even if we keep only 2bbl of that, this strengthens Soviet power’. Or, in theoretical terms, the emerging socialist society must participate in the international division of labour in order to survive and then prosper.

It was this failure to adopt an appropriate international economic policy that was a key factor in allow the imperialists to throttle the Soviet Union. The actions of the imperialists must be expected; the leopard cannot change its spots. What Hitler failed to do by force of arms, Reagan and Bush achieved with an arms race (with the help of all the imperialist powers, primarily Japan).

The Soviet Union could compete with the most advance capitalist powers individually. But it could not compete when it cut itself off from world markets and they collaborated within world markets. Socialism in One Country provided the self-destructive economic policy which curtailed the economic development of the Soviet Union and led to it losing the arms race with the US. But this was a negation of October 1917, which had always been conceived by its leading architects as the first stage of the international socialist revolution, leading to a new international socialisation of production at a higher, more integrated level.

The actual legacy of October is not economic disaster at all. The outright disaster came with the overthrow of October. That legacy includes an economic growth rate which frequently outstripped the leading capitalist economies. And even now, after the disaster of 1992, the Russian Revolution leaves the combined Russian and other former soviet republics as a larger economy than many of its leading capitalist rivals.

The economic disaster for Russia was not the revolution, but its overthrow. The Revolution raised up the productive forces of the former Czarist empire so that its citizens even now enjoy a much higher standard of living than they otherwise would.