Why the Soviet Economy Initially Grew and Ultimately Failed

The Soviet Union initially experienced high rates of economic growth, but then headed inexorably toward economic collapse. How did the Soviet economy manage to grow at first, and why did it ultimately fail?

The Soviet command economy undertook extensive resource mobilization to put people, raw materials, and machines to work; the Soviets were especially able to mobilize heavy industry and increase production of industrial machinery-though often without any consideration for such machinery's use in satisfying the needs of consumers.

The Soviet government engaged in forced saving by compelling workers to consume less than they wanted to; workers were paid as little as possible so that the government might invest as much as possible into heavy industry. Workers were often told that they needed to make sacrifices today in order to achieve a glorious utopian future. During Stalin's collectivization of agriculture, this reached an extreme, as peasants had their last stockpiles of grain confiscated from them in order for the government to export it abroad and use the proceeds to fund industrial expansion.

The Soviet economy was not a purely centrally planned system-and there existed many official and unofficial capital markets. Firms would often illegally trade inputs among each other, and sometimes government planners would explicitly encourage firms to maximize profits-albeit at non-market prices negotiated between the firms and the central planners.

Even after the economic decline began in the 1970s, high oil prices helped stave off the collapse for another decade-as the USSR was then the world's top oil exporter.

But numerous factors led to the ultimate collapse of the Soviet economy-whose growth could not be maintained indefinitely.