Was Stalin Necessary for Russia’s Economic Development?

By Anton Cheremukhin, Mikhail Golosov, Sergei Guriev and Aleh Tsyvinski

http://d.repec.org/n?u=RePEc:nbr:nberwo:19425&r=dge

This paper studies structural transformation of Soviet Russia in 1928-1940 from an agrarian to an industrial economy through the lens of a two-sector neoclassical growth model. We construct a large dataset that covers Soviet Russia during 1928-1940 and Tsarist Russia during 1885-1913. We use a two-sector growth model to compute sectoral TFPs as well as distortions and wedges in the capital, labor and product markets. We find that most wedges substantially increased in 1928-1935 and then fell in 1936-1940 relative to their 1885-1913 levels, while TFP remained generally below pre-WWI trends. Under the neoclassical growth model, projections of these estimated wedges imply that Stalin’s economic policies led to welfare loss of -24 percent of consumption in 1928-1940, but a +16 percent welfare gain after 1941. A representative consumer born at the start of Stalin’s policies in 1928 experiences a reduction in welfare of -1 percent of consumption, a number that does not take into account additional costs of political repression during this time period. We provide three additional counterfactuals: comparison with Japan, comparison with the New Economic Policy (NEP), and assuming alternative post-1940 growth scenarios.

I would not have thought it possible to make a welfare analysis of the first decades of the Soviet regime. Data is spotty or likely manipulated, and the economy is distorted in ways that are difficult to measure or model. Still, the authors use here all they can find to come up with strong results. If Stalin was manipulating the data, the outcome would have been much better. One cannot help thinking that TFP may have been endogenous in this context. The mission being full employment, one does not necessarily employ the best technologies. I am sure this paper will spark much more research on the topic.