Was Stalin necessary for Russia economic development?

s
Anton Cheremukhin FRB of Dallas Mikhail Golosov Princeton Sergei Guriev NES Aleh Tsyvinski Yale

February 2013

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Russian Industrialization in 1928-1940

Real GDP per capita
3000 0.9

Labor Share in Agriculture

0.85

PPP 1990 international dollars

2500 0.8

2000

0.75

0.7 1500

0.65

0.6 1000 0.55

Stalin
500 1890 1900 1910 1920 1930 1940 0.5 1890 1900 1910 1920

Stalin
1930 1940

Figure: Real GDP and sectoral labor share in Russia in 1885-1940.

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Was Stalin Necessary?

General agreement: Stalin policies unnecessarily brutal s Critics: rapid growth may be catch-up to pre-WWI trend Supporters: Stalin policies fundamentally improved economic allocations s Main channels:
"Big Push": massive state intervention kick-starts productivity growth (Murphy, Schleifer and Vishny (1989)) Stalin policies "broke barriers" that existed under the tsars (Allen (2003), s Acemoglu and Robinson (2012))

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This paper

Creates consistent dataset of aggregate and sectoral variables for Russia:

under the tsars (1885-1913) under Stalin (1928-1940)

Standard two-sector neoclassical growth model

follow Cole and Ohanian (2004) and Chari, Kehoe, McGrattan (2007) to measure wedges - distortions introduced by policies

Counterfactuals: compare
Simulated Tsarist economy (with tsarist distortions) s Stalin economy (1928-1940) and simulations without WWII (1941-...) s

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Main Results

Stalin economy (1928-40): s

1928-1935: Initialization of policies
wedges signicantly worsen; peak coincides with peak of policies

1936-1940: Moderation
all distortions lower under Stalin ("broken barriers") TFP level and growth rates lower under Stalin (no "big push")

Counterfactuals:
1928-1940:
Welfare loss of -24% consumption under Stalin

1941-onward:
Welfare gain of +8 - +16% consumption depending on TFP growth

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Theoretical framework: two-sector growth model (I)

Consumers:

t =0

A log ct

A + (1

i M ) log ct , A

Producers:
manufacturing (non-agriculture)
M YtM = FM KtM , Nt

= AM KtM t

M Nt

agriculture
A YtA = FA KtA , Nt

= AA KtA t

A Nt

Capital and labor shares: K ,A + N ,A K ,M + N ,M

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< 1 = 1
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Theoretical framework: two-sector growth model (II)

Goods market clearing:
A Nt ct + extA = YtA M Nt ct + extM + GtM + It = YtM

Labor and Capital markets clearing:

A M Nt + N t = t N It + (1 ) Kt = Kt +1

KtA + KtM = Kt Exports (exogenous at price qt ): qt extA + extM = 0

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Benchmark: competitive equilibrium with no distortions

Competitive equilibrium is optimal M First order conditions (pt = 1): FM ,K (t ) pA,t FA,K (t ) FL,K (t ) pA,t FL,K (t ) UC ,A (t ) UC ,M (t ) UC ,M (t )

= =

rM (t ) =1 rA (t ) wM ( t ) =1 wA ( t )

= pA,t = UC ,M (t + 1) (1 + FM ,K (t )
)

The data will reject the implications of this frictionless economy

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Economy with frictions

Chari, Kehoe, McGrattan (2007) accounting procedure:
compute wedges from observed quantities/prices

Given these wedges, competitive equilibrium replicates data exactly. In our context: AM , AA , Gt , qt extM , extA , K0 plus t t
Inter-sector capital wedge: 1 + R (t) = Inter-sector labor wedge: 1 + W (t) = FL,K (t ) w (t ) = M pA,t FL,K (t ) w A (t ) pA,t UC ,A (t ) = pA,t pA,t UC ,M (t ) FM ,K (t ) r (t ) = M pA,t FA,K (t ) rA (t )

Price scissors: (producer faces pA,t and Consumer faces pA,t ) 1 + C (t) = Intertemporal wedge: 1 + K (t + 1) =
CGGT ()

UC ,M (t + 1) (1 + FM ,K (t + 1) UC ,M (t )

)
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Was Stalin necessary?

Data (1885-1913, 1928-1940)

Create consistent dataset for aggregate and sectoral variables Tsarist period: data reconstructed using Gregory (1982) Soviet period: data reconstructed using Moorsteen and Powell (1966)
quantities reliable, prices not measure quantities in 1913 prices

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Brief History of Stalin economic policies s

Following tsars, WWI, Revolution, Civil War, New Economic Policy In 1928 Stalin consolidated power, two major economic reforms:
Industrialization: signicant increase in state investment in manufacturing, s especially in heavy industry Collectivization: forced organization of peasants into communes, abolishing private property on means of agricultural production (horses, cows, plows, etc.)
Price scissors: a mechanism of surplus extraction Peasants were forced to sell agricultural goods at articially low prices.

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Aggregate economic indicators in Russia in 1885-1940.

Real GDP per capita
PPP 1990 international dollars
3000 0.9 0.8 0.7 2000 0.6 1500 0.5 1000 0.4 0.3 0.3 0.2 0.1 0.4 0.6 0.5 2500

Labor Share in Agriculture

Agric Value Added to GDP in 1913 prices

500

1890

1900

1910

1920

1930

1940

1890

1900

1910

1920

1930

1940

1890

1900

1910

1920

1930

1940

Investment to GDP ratio

1.6 0.3 0.25 0.2 0.15 0.1 0.05 0 1.4 1.2 1

p /p
A

Import and Export to GDP ratios

0.2 ex /Y
A A M

-ex 0.15

/Y

0.1 0.8 0.6 0.4 0.2 0 0.05

1890

1900

1910

1920

1930

1940

1890

1900

1910

1920

1930

1940

1890

1900

1910

1920

1930

1940

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Calibration
Russia and Japan are quite similar before 1913
Use Hayashi-Prescott calibration of preferences and technology in Japan No intermediate goods; assign to labor in M , land in A

Parameters from HP:

Utility: = 0.96; = 0.15; 1 = 0.85 Manufacturing sector: K ,M = 0.3; N ,M = 0.7 Agricultural sector: K ,M = 0.14; N ,A = 0.55 (the rest is land)

Other parameters:
Subsistence A
set to 28 rubles per capita in 1913 prices; 72% of agricultural consumption in 1885

Fraction of labor force to population t

set to 1897 census = 0.53; slightly higher than 1926, 1939 census

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Wedges
A
1.8 1.6 1.8 1.4 1.6 6 1.2 1.4 1.2 1 Wedge Trend 1890 1900 1910 1920 1930 1940 1 0.8 1890 1900 1910 1920 Wedge Trend 1930 1940 4 2 0

M
2.2 2

A
12 10 8 Wedge Trend

0.8

1890

1900

1910

1920

1930

1940

25 Wedge Trend 20

W
12 10 8 Wedge Trend

C
0.8 0.6

15

6 4 2

0.4

Wedge Trend

10

0.2

5 0 0 1890 1900 1910 1920 1930 1940 -2 1890 1900 1910 1920 1930 1940

-0.2

1890

1900

1910

1920

1930

1940

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Intersectoral Labor Wedge

(1+W)/(1+ C)-1
12 10 Stalin Tsar 8

0 1928

1930

1932

1934

1936

1938

1940

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Russia with and without Communists

Tsarist counterfactual:
Extrapolate average (1885-1913) tsarist wedges Actual population for the whole period

1928-1940: compare paths and welfare

Data under Stalin Tsarist counterfactual

1941-onward (with no WWII):

Simulated economy with Stalin average 1937-40 wedges s Tsarist counterfactual

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Extrapolating Wedges
A
130 120 110 300 100 250 90 80 70 Stalin Tsar 1930 1940 1950 1960 200 150 Stalin Tsar 0.1 0.05 0 0.15

M
400 350

A
0.25 0.2

G /Y and ex /Y
M M A
M A M A

G /Y Stalin ex /Y Stalin G /Y Tsar

M M

ex /Y Tsar
A A

1930

1940

1950

1960

1930

1940

1950

1960

25 20 15 10

and

W R

Stalin 12 10 8 6 4

C
0.3 0.2 Stalin Tsar 0.1 0 -0.1 -0.2

Stalin
W R

Tsar

Tsar

Stalin Tsar

5 0

2 1930 1940 1950 1960 0 1930 1940 1950 1960

1930

1940

1950

1960

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Russia without the Communist Revolution

1928-1940: Consumption in both sectors is signicantly lower

Welfare loss -24.1% of consumption

1941-onward: Consumption is higher under Stalin

Lower wedges lead to higher capital accumulation and reallocation of labor Welfare gain +16.5% of consumption

Net eect on Generation 1928: lifetime welfare loss -1.0%

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Russia without Communists vs. Stalin

Value Added per capita
250 200 150 100 50 0 25 20 15 10 5 0

Capital relativ e to 1928

1930

1935 Y S talin
A

1940
M

1945

1950 Y Tsar
A

1955 Y Tsar
M

1960

1930

1935 K S talin
A

1940
M

1945

1950 K Tsar
A

1955 K Tsar
M

1960

Y S talin

K S talin

Consumption per capita

160 140 120 100 0.7 80 60 40 20 1930
A

Labor Share in Agriculture

0.9 0.8

0.6

1935 c S talin c

1940
M

1945 c Tsar
A

1950
M

1955 c Tsar

1960
A

0.5

1930

1935

1940
A

1945

1950 N Tsar
A

1955

1960

S talin

N S talin

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Eects of Policies on Welfare

Manufacturing TFP falls: large welfare losses Wedges fall: long-run welfare gains sped up transition, welfare gains

Trade collapse:

Hard to attribute to Stalin: ToT deteriorated in the 30s

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Conclusions

Policies:
Lower barriers in the long run Lower productivity under Stalin (no "big push")

Welfare:
Large short run cost of policies Modest long run benet Short run costs outweight long run benets

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Stalin vs. Tsarist: Wedges and Welfare

Policy

Gain from policy for [28-40] [28-] [40-]

K C W AM AA Trade

-2.2% 11.4% -10.1% -1.9% -15.4% 5.5%

4.7% 13.0% -4.6% -6.6% -7.4% 5.4%

9.9% 9.9% 3.6% -10.2% -1.3% 5.3%

Total

-24.1%

-1.0%

16.5%

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Stalin vs. Tsarist: Share of Labor in Agriculture

Policy

NA N

in 1945

Contribution

K C W AM AA Trade

-2.7 % -3.1 % -4.0 % 0.4 % -0.2 % -2.6 %

23 % 24 % 31 % -4 % 2% 21 %

Total

-12.6 %

100 %

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Alternative Scenarios

Non-agricultural TFP under Stalin falls in 1936-1940

if we extrapolate it after 1940, welfare losses are bigger additional -4.5% for Gen-28 and -7.8% for Gen-40

Drop in trade explains a large part of long run gains

in the data a big drop in international prices of wheat after 1930 this increases incentives to relocate and industrialize presumably this would have happened under the tsars as well

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Russia vs. Japan

Real G DP p er cap ita

3000 0.9 Russia Japan 2500 0.8 0.7 2000 0.6 1500 0.5 1000 0.4 0.3

L ab o r Sh are in Ag ricu ltu re

Ag ric Valu e Ad d ed to G DP in 1913 p rices

0.6 0.5 0.4 0.3 0.2 0.1 Russia Japan

PPP 1990 international dollars

Russia Japan 1890 1900 1910 1920 1930 1940

500

1890

1900

1910

1920

1930

1940

1890

1900

1910

1920

1930

1940

In vestmen t to G DP ratio
1.8 0.3 0.25 0.2 1 0.15 0.8 0.1 0.05 0 0.6 0.4 1890 1900 1910 1920 1930 1940 0.2 1890 Russia Japan 1900 Russia Japan 1.6 1.4 1.2

p /p
A

Imp o rt an d Exp o rt to G DP ratio s

0.2 0.1 0 -0.1 -0.2 -0.3 -0.4 ex /Y Russia
A A

-ex
A

/Y
A

Russia

ex /Y Japan -ex 1890

M

/Y

Japan 1910 1920 1930 1940

1910

1920

1930

1940

1900

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Alternative counterfactual: Stalin vs. Japan

Policy

Gain from policy for welfare [28-40] [28-] [40-]

K C W AM AA Trade

-2.6% -8.1% -4.9% -6.0% -20.1% 5.5%

0.6% 1.0% -9.5% -12.2% -10.8% 5.4%

3.1% -0.9% -4.0% -16.9% -3.6% 5.3%

Total

-43.2%

-28.4%

-16.4%

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