San José State University
Department of Economics
Thayer Watkins
Silicon Valley
& Tornado Alley

The Inefficiency of the Soviet System

Yegor Gaidar, in his book Collapse of an Empire, gives the following illustrations of the inefficiency of the Soviet System.

Examples of how inefficient the Soviet economy was are well known. The Soviet Union mined eight times as much iron ore as did the United States. That ore yielded only three times as much pig iron, and the pig iron only twice as much steel. Finally, from that steel it was able to produce machines worth roughly the same as those produced in the United States.

The use of raw materials and energy in the production of each final product was, respectively, 1.6 and 2.1 times greater than in the United States. The average construction time for an industrial plant in the U.S.S.R. was more than ten years, in the United States less than two years. In manufacturing per unit, the U.S.S.R. in 1980 used 1.8 times more steel than the United States, 2.3 times more cement, 7.6 times more [mineral] fertilizer, and 1.5 times more timber. The U.S.S.R. produced 16 times as many grain harvesters, but harvested less grain and became dependent on grain imports. [p. 75]

Gaidar remarks with some sarcasm

Ideas for ambitious, large-scale projects, without consideration of their costs, occurred to Soviet leaders with regularity.
Many of the projects in which significant resources were invested turned out to be either ineffective or pointless.

For example, there were plans to reverse the flow of rivers that empty into the Arctic Ocean. After enormous expenditures the government in the late 1980s abandoned them and wrote off the expenses. Gaidar notes that the expenditures for those projects which produced no benefits nevertheless appeared as a part of the official estimates of the Gross Domestic Product (GDP) of the Soviet Union.

The Waste of Resources in Producing
Low Quality, Unusable Products

There were cases that appeared in newspapers of such things as sunglasses that were so dark that one could not even see the full sun through them. Another case was of rubberized rain-coats that were improperly vulcanized so that when they were folded up the rubberized fabric stuck together so strongly they could not be unfolded. Another was of women's high heel shoes in which the heels were stapled to the wrong part of the part the foot rests upon. All of these useless products were stored in warehouses indefinitely but they nevertheless were counted as fulfilling some of the production quotas of the enterprises that produced them. They also were included in the official GDP of the Soviet Union.

Even worse is the case that Gaidar reported. The Soviet Union had numerous plants built in the 1940s and 1950s for producing poison gases. After an international agreement was reached banning poison gases those plants were converted to other uses including the production of food products. There were also plants for producing DDT that were also converted. Gaidar reports

Research in the 1980s revealed that tens of millions of people became victims of pesticide poisoning through contaminated food products produced in those plants. This catastrophe affected the nation's health and influenced the demographic situation for decades. [p. 77]

For the story of the fruit and vegetable warehouses of Moscow see Luzhkov.htm.

(To be continued.)

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