From Russia's Steppes to China's Leap: The Parallels of Power and Progress

In 1931, Stalin's Soviet Union underwent rapid industrialization with centralized control, drawing parallels to modern China. The narrative raises concerns about centralized power stifling innovation and emphasizes the need for market reforms to ensure sustained economic growth in China.

It’s the year 1931. Joseph Stalin’s iron-fisted rule is revolutionizing the Soviet Union. Towering factories rise from the Russian steppes, symbols of a bold, rapid industrialization that promised to vault the Soviet Union into the ranks of global superpowers. Economic development, the Stalin style, was this: prompt growth of the industry through a command system and sustain it through taxation on agriculture. Lincoln Steffans, a renowned muckraker journalist with very loud opinions against capitalism in the US, had just written an autobiography in which he recalls his bafflement upon seeing the potential of the great Soviet regime. “I have been over into the future, and it works,” he said passionately. This forms the prologue to the story of a nation that faced monumental growth like no one had ever seen before and then eventually collapsed.

Fast forwarding to the current world, we see a similar narrative unfolding in another nation. China, which challenges Western hegemony and offers an alternative growth model, has transformed into an economic powerhouse under the Communist Party's leadership. However, under this story of unconstrained growth, there are remnants of the Soviet past. China combines ambitious economic planning with centralized political authority, just like the Soviet did. The remarkable similarities between modern China and the Soviet Union in the early 20th century are examined in this piece.  It explores the institutional links that, in spite of the historical and contextual variations, pose a concerning question: Will China follow the Soviet Union's trajectory and experience years of political and economic instability in the future?

In an attempt to extract competitive advantages from the newly minted industry, the Soviet Union failed to create the right incentives due to the strict state control of the resources, leading to an inefficient use of them. We can see this in the example when Stalin forcefully moved labor from agriculture to the industry. Compared against the US and UK at the time, the Soviet had such primitive technology, large gains could have been made from the reallocation of the resources. Since this spurt of growth had not come from technological change, the Soviet’s progress was halted with the poor economic incentives and limited innovation. Stalin recognized the lack of motivation, but he tried to mitigate it by incentivizing increasing output levels instead of promoting technological advancements which would have been more sustainable in terms of growth. The fact remains is that an oppressive centrally planned institution like the Soviet Union just lacks the “invisible hand of the market” which disables effective incentives to be introduced into the economy, creating an exclusive economic landscape in the country. 

Stalin's institutions were not only built for economic control, but also for the concentration of power and money, which deters other stakeholders and inhibits creativity. Such exploitative organizations are readily able to proliferate throughout China due to the country's state-owned businesses' dominance in the economy. The Communist Party continues to have a major influence on policy choices about which sectors will prosper and grow, which discourages innovation, which is essential for the advancement of technology. China's present economic trajectory is based mostly on acceptance of existing technologies coupled with massive investment, rather than innovation; there is a limit to the creative destruction. Entrepreneurs in China need the support of the state to venture into any entrepreneurship. This goes to show the extent to how exclusive the Chinese economy can be.

What is the solution? It is interesting to note that tight centralization was necessary for the Soviet Unionto be able to direct resources towards high-productivity sectors by coordinating economic activities. Growth is facilitated because there is a lot of catching up to do. Of course, the growth in China is not a splitting image of the one in the Soviet Union as China’s growth composition is a lot more diversified than the latter. But regardless, in such an extractive political set up, economic growth is not sustained and will eventually run out of steam, particularly once China reaches the standards of a middle-income country. This calls for major market reforms in order to bring about institutional changes.

Let's be clear: China’s economic journey is not a path set in stone towards inevitable decline. The nation has made significant strides over the past 30 years, moving towards more inclusive systems in various aspects of its economy. Remember Steffans? He saw the future in the Soviet Union and was convinced it was the real deal. History, however, had a different plot twist in store. This is a nudge to us all: let's not be the Steffans of China's story. Let's swap the rose-tinted glasses for a magnifying lens and take a closer, more critical look at the growth path China has built for itself. For the true measure of China’s progress is when it is able to fuel sustainable growth in its economy.

Written by Raidah Anwar