• The Invisible Hand

Russian and Chinese Communist Economies: Similarities and Differences

These two economies once dominated the global economy and the aftermath of their collapse still has a profound effect on the global economy today.

Vladimir Lenin: Communist Ruler of Russia (1917-1924)

The biggest communist economies were Russia and China. Despite their massive impact on the field of economics there seems to be little analysis of these economies in the context of modern day. Russia transitioned suddenly to communism in 1918 soon after the 1917 revolution and China began over 30 years later in 1949. Fundamentally, they both shared the key characteristics of collective ownership and central economic planning.

Both of these economies had their primary focus on industrialisation and creating a strong military often in order to defend their system from other hostile countries. They also both adopted income equalisation policies which effectively eliminated the middle class. However, their methods differed. Russia adopted a centralised system while China adopted a decentralised system. This meant that in Russia all economic activity was dictated from the central government while in China from 1957, they put the authority for decision making at a provincial level. In many instances, initially, China learnt their lessons from the inefficiency of the Soviet system, for example, they did not adopt an overly heavy industry focused plan and instead concentrated more on agriculture and light industry.

They did however, both have full state ownership. This was a gradual process in China, although it only took one to two years in Russia. By 1952, 17% of industry was still out of the government’s control and 32.5% of enterprises were under a public-private ownership strategy rather than pure state ownership in China..

For a time both economies used a policy called Five Year Plans. This was a detailed set of economic targets and instruction for the next five years, after which a new one would be issued. In China, they even let Soviet planners and engineers design some of these programmes. Surprisingly both plans were incredibly successful in promoting industrialisation. In China, thousands of industrial and mining enterprises were constructed. However, after 1958 China launched a ‘Great Leap Forward’ instead which more intensive and focussed on all aspects of the economy.

This turned out to be an utter disaster and poor organisation and misallocations of resources caused industrial output to plummet by 38% combined with the excessive strain on workers and the withdrawal of Soviet assistance. It also led to widespread famine and 14 million people are thought to have died from starvation. Russia shares this feature in common as 10 million people died in their Holodomor in Ukraine although unlike China, this was largely on purpose to suppress the dissident Ukrainians. China also imported 5 million tons of grain per year to prevent hunger while Russia refused to accept any aid and denied there was a problem. Fundamentally, they struggled they struggled to achieve long run growth because political zeal, not the profit motive was the driving force behind production.

Chairman Mao Zedong: Communist Ruler of China (1949-1976)

In agriculture both communist economies adopted collectivisation, where individual farms are linked together in massive factory farms where peasants share equipment and living facilities. This aims to increase efficiency and socialise peasants by forcing them to work together.

In China, collectivisation began slowly although it accelerated after 1955 so by 1957 93.5% of farms were in collectives. They were further reorganised during the Great Leap Forward during which 98% of farms were organised. In Russia, farms were not collectivised straight away, but rather it occurred suddenly from 1929. Output suffered straight away in Russia, but in China it increased and grew by 4% a year. It would, however, suffer terribly during the Great Leap Forward.

Collectivisation was ideologically driven so despite its apparent failure it remained in place for many years. It would take the death of Stalin in 1953 for reforms to occur. In both countries, conditions improved as positive reforms were introduced for example. Agricultural taxes were reduced and the prices for agricultural products was raised. Both countries also launched campaigns to promote chemical fertilisers and machinery. They also recognised the benefits of decentralisation in the 1960s.

Farmers tilling a field in Xiaogang, China

Overall, it was probably the Chinese system which was the least badly managed because although the policies were ineffective, at least the government was more flexible and adapted to changing circumstances. They learnt from some of the failures of the Soviet system for example their system was much more decentralised. Both sides suffered tremendous human casualties as result of these experiments, but in proportion to their population China’s policies were perhaps not as terrible.

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