By Camelia Vasilov
Kohli (2004) argues that the pattern of state authority – and particularly the institutionalization of the relationship state-private sector – is crucial in explaining why essentially the same developmental challenge resulted in different outcomes for South Korea, Brazil, India and Nigeria. I think that we can gain useful insight from this theory into the success and failure of the Soviet Union.
Indeed, the efficacy of the government in imposing growth-inducing economic decisions, at the expense of much human suffering, was the key to the miraculous Soviet industrialization and urbanization achieved in only 15 years. But the Soviet system carried the seeds of its own destruction.
As Olson (2000) shows, it wasn’t just the state appropriation of all capital, but rather the peculiar system of taxation that squeezed the maximum worth of people’s work and gave the Soviet Union “more resources for the purposes of leadership that any society in history” (p.120).
Soviet taxation was nearly total on regular working hours, as only the state was entitled to the benefits of people’s work, whose wages were kept below subsistence level. However, there was no taxation on working extra hours – Stakanovist practices were actually monetarily rewarded – or engaging in little trades on the side, unrecognized by the state, as long as one was not caught. Basically, people had to work outside the planned economy as well if they wanted to survive.
But eventually these tiny markets that emerged within the cracks of totalitarian power became essential for fixing the mistakes of planned economy – and the state lost more and more transactional information and thus control over the emerging entrepreneurs.
Wouldn’t it have better if the SSSR took these entrepreneurs under its wings and aligning its goals with them? An agent with the same preferences as the principal is no longer a problem. In South Korea - a cohesive-capitalist state in Kohli’s framework – this is exactly the case: the two horses of business and state are pulling in the same direction (p.21). Could the Soviet Union have become a cohesive-capitalist state? Is China undergoing this transition now?