Born in 1878 in present day Georgia, Joseph Stalin was the ruler of the Soviet Union from the mid 1920’s until his death in 1953. Infamous as one of the most brutal dictators in recorded history, Stalin was also the figure ultimately responsible for the economic framework that would go on to define Soviet-style socialism. His aspirational five-year plans transformed the Soviet Union into the industrial superpower that defeated Nazi Germany in World War II.

Stalin came to power in the midst of Vladimir Lenin’s New Economic Plan (NEP) after Lenin himself died in 1924. The NEP was a series of relatively market-friendly policies aimed at repairing an economy ruined by civil war, during which large-scale industry had fallen to 13% of its 1913 level. The plan granted significant economic freedom to farmers and peasants; and crucially, generally refrained from coercive tactics to achieve production targets.[1]

In late 1927 a severe grain crisis emerged as collections fell by a third over the previous year. Historians are divided on the primary cause of the crisis, but explanations range from deliberate engineering by Stalin to undermine support for the NEP and economic freedom, to erroneous price policies and underinvestment in agriculture. Regardless, Stalin framed it as a failure of the free-market allowances of the NEP and a clashing of class interests. He accused the Kulaks (wealthier peasants less receptive to Marxist-Leninist ideals) of withholding grain to undermine the revolution.[2]

Stalin knew that hardship and confusion from the grain crisis would escalate into social unrest unless the government was seen to be doing something. On 28th May 1928 Stalin made a speech declaring that his five year plan of rapid industrialisation would transform the living standards of the people of the Soviet Union. If the NEP focused on the repairing of a broken society, Stalin’s first five year plan celebrated the building of a new one.

A year later the plan was formally adopted at the All Union Congress of Soviets. Retrogressively effective from October 1928, it ambitiously predicted a 236% increase in gross industrial output and 70% increase in real wages by 1933.[3]

The essence of the plan was large-scale, centrally-planned mobilisation of labour and capital in urban areas and agricultural collectivisation. Stalin envisaged a moneyless, industrialised, socialist economy; with virtually no private market activity or class differentiation. The use of violence and coercion against uncooperative peasants was common and Kulaks were deported en masse to Siberia.[4]

That the Soviet Union was coming from such a dismal starting position did not worry Stalin. He realised the country could simply import the technical standards achieved by years of trial and error in capitalism.[5] The need for workforce skills could help explain why education was a focal point of the first five year plan. Primary education became near universal in urban areas and there was a 450% increase in the number of higher education students over the duration of the plan.[6]

However, by 1930, administrative chaos and resource shortages created an economic crisis. From April to June 1930 the gross output of large-scale industry dropped by 4.9%. The political fallout was such that some individuals within the party called for decentralisation reforms and market incentives. Stalin labelled these voices as “enemies of socialism”, and proclaimed that the crisis would be overcome by further industrial acceleration and stricter controls on labour discipline.[7]

An agricultural crisis quickly developed concurrently. Output declined yet state procurement rose by 4% from 1931 to 1932, further demoralising farmers and hastening the decline in output. A severe shortage of food soon followed and mass starvation afflicted many parts of the western USSR.[8] Historian Robert Conquest estimated a death-toll of 7 million lives; including 5 million in Ukraine alone, where it is now known as the Holodomor (hungry mass-death).[9]

By mid-1933 the famine appeared over. Productivity began to increase as the rapid influxes of unskilled peasants from rural areas refined the skills necessary to work in large-scale industry. By the start of 1934 the economic and agricultural crises were fully overcome. The feeling among the party was victorious and drafts for a second five year plan were in motion.[10]

The second plan had a specific military focus. The capital already accumulated was put to work producing weapons to combat the threats presented by Japan in the east and Germany in the west.[11] As the industrial investment from the first five year plan paid dividends, the Soviet Union experienced what has been called the “three good years”. From 1934-36 gross industrial production grew by an alleged 88%.[12]

The composition of gross national product (GNP) over the critical period of the two plans tells a clear story of rapid growth and industrialisation. Figures 1 and 2 below illustrate these dramatic changes. Note the marked reduction in the relative size of household consumption, representative of the alleviation of subsistence living; and the increased proportion of investment, indicative of higher savings from higher income.[13]

Figure 1: GNP composition in 1928

Figure 2: GNP composition in 1937

Overall, the years of 1928 to 1940 saw impressive economic growth, considering the burden of central planning and lack of market incentives. The best estimates of the annual growth rate of GNP amount to somewhere between 5-6 per cent.[14] Although such estimates cannot be made with much certainty, economist Simon Kuznets nevertheless concluded that, in comparison to a variety of other nations in that era, “the USSR stands out with a high rate of growth of total and per capita product”.[15]