Communism was one of the most influential ideologies of all time. Millions of people lived under Communist regimes and millions more debated whether or not it would be a superior system. However, as everyone knows, it failed. It hardly needs to be said that the Soviet Union failed to provide an adequate standard of living, and this was the major reason for its collapse. But why? Huge amounts of ink have been spilt over narrating its collapse, but little has been said about why this happened. What was it about Communism that made it fail?
I will run a series of posts discussing several reasons why communism failed economically. It will soon become clear that there is a strong overlap among the reasons and there are all interlinked. Although I will not quote sources, the posts are based on a politics essay I wrote for university. The first and most obvious (though not always discussed) reason was that Communist regimes were dictatorships. This meant there was a repressive environment, large military expenditure, misallocation of resources, and the heavy burden of a totalitarian regime and the absence of procedures to remove incompetent decision makers.
The most notable feature of the Soviet Union was its heavy military expenditure. Huge amounts of money was invested in the military. Roughly 20% of the Soviet Union’s budget was spent on the military, compared to only 4% in the US. These resources could have been far better spent on productive activities instead of wasted on the military which provided no economic return. The constant threat of war meant Communist countries were always on edge and military projects were given priority, to the detriment of the rest of the economy. The invasion of other countries, particularly Afghanistan were costly debacles and a further drain on resources.
Communist countries were noted for their large totalitarian superstructure. Huge resources were put into building a secret police and spying on the population. Roughly one quarter of the population of Romania and East Germany was employed as informants by the secret police. The concentration camps and Gulags were enormously expensive and starved the rest of the economy. Money that could have been better spent rebuilding Eastern Europe was instead spent on repressing the people.
A dictatorship is stifling for reasons beyond the large cost of maintaining one. A dictatorship discourages innovation or the creation of new ideas. In a culture of fear, standing out is a dangerous choice and it is easier and safer to avoid notice and not to perform exceptionally. Thinking outside the box and questioning the status quo would involve putting your life at an enormous risk. Independent thinking was squashed and discouraged. This absence of innovators and entrepreneurial spirit meant Communist countries languished in idleness. There was little incentive to attract attention to oneself with bold new ideas that would challenge the system. Rather it was safer to continue the old ways, even if this meant the economy would stagnate.
A dictatorship restricts information and makes it had for regimes to discover and correct their mistakes. Subordinates stayed in their position (and alive) by telling their boss what they wanted to hear, not the truth. In a dictatorship there is no such thing as constructive criticism which made improvement much more difficult. Without proper debate, failures cannot be detected and corrected. If your sources of information are more concerned with sycophancy than truthful reporting than accurate decisions cannot be taken. Central planning in particular relies heavily on the necessity of accurate information which is why a dictatorship is so disastrous.
Another crucial feature of Communist dictatorships is the lack of checks on power. There is no right to criticise policies, as doing so would be disloyal. Without the freedom to criticise, bad decisions cannot be discovered and problems go unfixed. If a decision maker makes a mistake then there is no way to correct it. Managers didn’t know whether or not their policies were successful or if they were even being implemented. Incompetence went unpunished. In a repressive society corruption is not detected and therefore flourishes. There was no mechanism for removing corrupt or inept managers or even finding accurate information on them. In a dictatorship, loyalty is the most valued trait and so Communist regimes were dominated by loyal but incompetent bureaucrats.
Dictatorships furthermore undermined individual support for the system. It legitimised black market activities and employee theft (which grew to rampant levels by the 1980s). It was seen as a way of getting back at the repressive government. Ordinary people were disincentivised and demotivated. Why work hard if it will strengthen a regime you despise? People who had their freedoms taken away from them actively sought ways to undermine Communism. As all economic systems are based on trust, the culture of fear that dictatorships created meant that you could trust no one. As a result the system foundered.
It was for these reasons that Communism failed. You cannot build a successful economic model if you insist on executing independent thinkers and imprisoning creative minds. The enormous totalitarian apparatus is a monolith that will crush the rest of the economy. The military industrial complex prospers at the expense of the rest of the economy. A repressive environment breeds a resentful population that is only too willing to get their own back at a government they despise. Original thinking is discouraged and the economy stagnates. That is part of the reason why Communism failed.