SOVIET RUSSIA vs. NAZI GERMANY IN THE INTER-WAR PERIOD
The period between World War I and World War II - like no other period in modern European economic history - provided a fertile ground for the development of the classic centrally planned economy in two states at the same time. The inter-war era was not only the classic, but essentially the only true age of economic planning. This is reflected in the fact that such two world giants as Soviet Russia and Nazi Germany (up to 1941 and 1939 respectively) subscribed to the economic planning system, and with certain success. During this period, the principles of economic planning were both developed and implemented to a fuller extent than at any other time in history. Both Stalin's Russia and Hitler's Germany often used very similar means (propaganda, economic plans, etc.) in pursuing the targeted goals; however, each achieved different results. The extent to which the economic planning was incorporated in these two countries between World War I and World War II is thoroughly (as thoroughly as the size limitations of the present essay allow) described below.
In Russia Stalin's planned economy was ushered in by the New Economic Policy (NEP) of 1921-1928. NEP was essentially a mixed money economy - part of the market was in state possession (major banks, industries, foreign trade, etc.), while the other part was owned by private entrepreneurs. NEP did bear fruit. However, it did not give USSR a sufficient growth in the "commanding heights" of economy (i.e. coal, steel and military industry) and neither did it provide adequate foodstuffs for the cities (as in such system the expanding class of middle peasantry fed only themselves). Being well aware of these facts as well as of Russia's general economic backwardness, Stalin introduced Soviet/Marxist planning. His famous quote set the stage for it:
Starting from 1928 the Soviet economy was essentially a system of planning where all modes of production were socialized and free market was replaced by an autarkic system of demand and supply. It was a teleological system of planning - a system focused solely on the end-results, often ignoring the circumstances.
Stalin, in his own crude and tyrannical manner, brought about what Geoffrey Hosking, Sheila Fitzpatrick and many other historians specializing in Soviet history refer to as "the Revolution from above" or the Revolution that effectively represented the other half of the 1917 Revolution - which had given the Bolsheviks control of only the urban population of the country (approximately 10% of the whole population). Stalin's "Revolution from above" touched upon every single area of the country's life - especially, influencing the economy of Russia. Its main features were: (i) strengthening of the political dictatorship, (ii) coercion against the кулак [kulak] peasants, (iii) "emergency measures" of suppression and repression of everyone not content with the present authority, (iv) mass collectivization, (v) deportation and execution of врагов народа [people's enemies] (especially between 1929-1930, and 1933-1938), (vi) introduction of a Five-Year Plan structure and rapid expansion of urban labor force, and (vii) close state control over agriculture, industry (especially heavy and military industry) and financial enterprises. All of this was achieved by deliberate repression of living standards and ignoring any form of organic planning. However, such methods were deemed acceptable by the leadership as long as the system worked. Between 1934 and 1936 the country reached a spectacular economic growth. These 'three good years' witnesses a relaxation of economic Stalinism. This was the period of the 'free market' within the planned economy, a period of the milder (more realistic) targets of the second Five Year Plan. Being driven by Stakhanovism - an economics psychology and morale of work motivation - Russia drew closer and closer to Stalin's aspirations. R. W. Davies writes:
Stakhanovism and Five-Year Plans had become the two major drives of the working class. Fierce competition between plants and factories, building brigades and regular workers conditioned the whole of the Soviet economy. However, it was not the same kind of competition that one may notice in capitalistic economic systems. It was a competition for resources and not the market shares. In Stalin's Russia success was judged not by meeting the deadlines of the plan but by beating them. "Five-Year Plan in four years!" had become the main slogan for every branch of industry. Such approach was in the center of boasting the levels of production and forging the aggregate results. But in actual fact, no economic agency could win success by beating the formal targets, because they were often set at absolutely unreachable heights.
Soviet propaganda did work. It achieved an optimal tautness in the overall economy of the country. However, contrary to the popular belief, such hortatory planning did not achieve its main goal - delivering the fixed amount of growth in a set time period. Spillovers from one Five-Year Plan to another were typical. However, it did produce 7-8% per annum industrial growth rates, new industries and new technologies.
Another good example of inter-war economic planning can be seen in the economics of Hitler's Germany. One of the main differences between German and Soviet economic systems was that the former was a mixed economy* [*However, state always played the major directing role.], while the latter was a state-owned economy. Furthermore, being heavily influenced by the ideas of Walter Rathenau, German economy did not seek to be built anew (as the Russian economy did), but rather be rebuilt, molding the existing form of capitalism into a better system. Finally, Nazi economic policy was built on the heritage of Bruning (negotiation of the system of payments for the country's external debt), von Papen (successful paying off of reparations) and Schleicher.
From the very outset of his rule, Hitler - whose main short-term goals were rearmament and economic revival of Germany with the help of bankers and industrialists - won the popularity of the German nation. Three major factors of Hitler's planned economic policy contributed to this. Between 1933 and 1936 Germany witnessed: (1) an aggressive unemployment liquidation campaign (between January 1933 and July 1935 the number of employed Germans rose from 11.7 billion to 16.9 billion); (2) rearmament program and inflation control measures; (3) 'freezing' of wages and price control. Besides this, taking into account the lessons learned during 1914-1918 Hitler aimed at creating an economy that would be independent from foreign supply and well protected from another blockade and economic war. For Germans all of the above was the best "proof" that Hitler was the one who had not only brought Germany out of Depression but would take it directly to prosperity. People's trust in the Fuehrer was rising dramatically.
The Nazis paid a special attention to the use of propaganda in their planning of economic development. They formed a separate - extremely powerful - governmental body bearing the name of the Ministry of Propaganda that was headed by the famous Paul Joseph Goebbels. From 1933 up until the end of the "Third Reich" this ministry was one of the keystones of Hitler's internal policy. Completely dominating all public utterances in Germany, this agency instigated the so-called war of nerves. The range of methods used by this institution for propaganda purposes was truly impressive. Success was one of the main components of Nazi propaganda. A stress was made on the successful recovery from the Great Depression, successful cancellation of reparation payments, and the revival of Germany's strength and international prestige. Any critical or skeptical voice was suppressed; which gave an impression of the absence of any contrary ideas.
Hitler's economic policies - supported by an extremely effective propaganda machine - did have their strengths. First and foremost, the question of unemployment was solved. It was definitely an achievement appreciated by many. Secondly, new technologies (electronics, aviation, etc) entered the market. Thirdly, a new infrastructure was erected; capital stocks became increasingly popular; women started working, etc. However, most of these 'achievements' were not specified plan targets. There were quite a few areas, which even Hitler's planning could not change. To be more specific: (1) Germany remained to be on a relatively low level of technical development; (2) synthetics industry was declining; (3) oil and fats were in deficit. This illustrates how German economic planning (and the use of propaganda) differed from that of the Soviet Union: for the most part, German propaganda was nothing but a "wish projection", while Hitler's economic planning could not achieve many of the set targets.
The Nazi economic planning ended with the defeat of Nazi Germany, while the USSR's, although persisted for the duration of the Soviet Union's existence, went into a state of gradual stagnation two decades later, never to regain the same kind of full-fledged totalitarian economic planning that it witnessed during the rule of Stalin (especially in the inter-war period). The inter-war period may therefore be justly christened an era of 'classic and only' economic planning in Europe.
- Foreign Policy Association, "The Soviet Economy: Past, Present, and Future" (Headline Series, No. 260, December 1982)