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The Structural Failures of Planned Economies III – Living Standards in the Soviet Union by Lili Zemplényi

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Opinion

The Structural Failures of Planned Economies III – Living Standards in the Soviet Union

Although socialism is usually depicted as favourable for the poor, of enchanting equality and socially just, the reality of planned economies was nothing like the current romanticised Western understanding of Marxism-Leninism. Although it always comes as a shock for people from Central Eastern Europe who lived through state socialism, nowadays in the West there are increasingly more young people who identify as Marxists or even Communists. Most famously Ashna Sarkar, who in 2018 shouted down the British television host, Piers Morgan, yelling ‘I’m a Communist, you idiot’[1]

It is not only young people who are mistaken about the real nature of Soviet-type planned economies, but academics, too. In 2010 Alexei Izyumov, professor at the University of Louisville, claimed that poverty was ‘largely a none-problem’ in the Eastern Block before the transition to free market economies[2]. Considering these widespread mistaken beliefs, it is important to remind ourselves of the economic failures of planned economies to be able to appreciate the prosperity free market economies brought about both in the region and globally. 

In 1981, the CIA ordered a large-scale study from the Joint Economic Committee about living standards in the Soviet Union (USSR). The two researchers, Gertrude Schroeder and Imogene Edward, did a thorough work examining living conditions in the rival hegemon. They did not rely on USSR propaganda figures, but based their analysis on data from a 1976 US covert operation which aimed at scrutinising the quality of life in the USSR. As part of the operation, 334 different types of items were purchased in the Soviet Union[3], the products being representative of the average consumer basket of Soviet households. These items were brought to the US, and they were examined in laboratories to assess their quality. The point was to take Soviet essential goods, assess them and compare their quality and price to identical US goods, that is to establish the USSR’s purchasing power parity. The study was supposed to give a representative insight into how well Soviet households live on average in comparison to Americans. 

The study’s attempt to sample not only a representative basket of Soviet goods but also to take into account the quality of the products is remarkable – without it our understanding of Soviet living standards would not be complete. Take for instance the example of television receivers in the USSR and in the USA. In 1987, there were 811 per 1 000 persons in the US, while in the Soviet Union only 314.  That in itself shows that Soviet living standards were inferior. But when the quality of this specific good was also considered, it turned out that Soviet living standards were significantly lower – while in the US these TVs were mostly colour TVs, in the USSR they were black and white. Clearly, when assessing living standards, the access to a specific good is not the only factor that matters – the quality of the good is also important information, as the CIA study rightly recognised. 

It was Soviet consumption of food that was the most comparable to US consumption (54 per cent), while the Soviet Union significantly lagged behind in household services

Overall, the CIA study found that the real per capita consumption in the Soviet Union in 1981 was only 34.4 per cent of that of the US[4]. Since relative poverty is usually defined as per capita consumption below 60 per cent of the average consumption in the given country, according to the 1981 CIA study an average Soviet household’s living standards were comparable to a US household’s quality of life that lived below the US poverty line. It was Soviet consumption of food that was the most comparable to US consumption (54 per cent), while the Soviet Union significantly lagged behind in household services (the USSR consumption was only 20% that of the US consumption in household services). When the study assessed the nature of the goods which were consumed in the USSR, it concluded that the USSR consumption is more similar to emerging countries’ consumption, and not to developed countries’ consumption. As such, the study called the Soviet Union the ‘world’s most “underdeveloped developed country”[5].

Throughout the study, the writers claimed that the results were probably biased in favour of the Soviet Union, and in reality, the living conditions in the Eastern Block were likely to be even lower. The bias is due to statistical mismeasurements. Despite the study’s attempt to construct representative consumer baskets and to control for the quality of goods, when calculating purchasing power parity for these two countries, there was one problem the study could not overcome: the pricing of none-existing goods in the USSR. In America, people’s life was made more comfortable by multiple services (e.g. supermarkets, stock exchange) and goods (e.g., diapers, nylon tights and denim jeans) which did not exist in the USSR. Since the study tried to compare USSR price levels with US price levels, it could not take into account goods and services which did not exist in the USSR – these goods did not have USSR price labels attached to them. 

In practice that meant that a newly built US house which already included a central air conditioning system was supposed to be worth roughly the same as a Soviet residential home (with otherwise similar characteristics) without air conditioning. Since in the USSR there was no air conditioning, it was not possible to estimate (at Soviet prices) the increase in the average US home’s worth as a result of air conditioning. Furthermore, the CIA study was also incapable of taking into account the negative psychological effects of planned economies, like having to stand in long queues (the time lost while waiting is also an omitted variable) and the anxiety felt because of shortages[6]. In short, these mismeasurements suggest that the living standards under Communism are likely to have been overestimated by the CIA study. Reflecting on these statistical mismeasurements, Schroeder reviewed the original study and concluded that the estimates for the USSR living standards can be further reduced to 28.6%[7] of that of the US consumption per capita. 

These findings give a radically different perspective of the Soviet Union and of planned economies then the romanticised picture of socialism suggests. Command economies did not bring social justice and welfare to the world. Capitalism and the free market – despite their many fallacies and drawbacks – are much more capable of bringing prosperity to the world than any other economic system. Capitalism’s achievements should be recognised, taught in schools, and appreciated. 


Lili Zemplényi, trainee at Danube Institute


[1] ‘I’m a Communist, you idiot’: British TV host Piers Morgan gets a mouthful on live television’, Scroll.in, 2018,  https://scroll.in/video/886377/im-a-communist-you-idiot-british-tv-host-piers-morgan-gets-a-mouthful-on-live-television, accessed 22 Jan. 2022.

[2] Alexei Izyumov, ‘Human Costs of Post-communist Transition: Public Policies and Private Response’, Review of Social Economy, 68/1 (2010), 100. 

[3] Gertrude Schroeder and Imogene Edward, ’Consumption in the USSR: An International Comparison’, U.S. Government Printing Office, (1981), 2.

[4] Gertrude Schroeder and Imogene Edward, ‘Consumption in the USSR: An International Comparison’, U.S. Government Printing Office, (1981), 5. 

[5] Schroeder and Edward, ‘Consumption in the USSR: An International Comparison’, 6.

[6] Abram Bergson, ‘The USSR Before the Fall: How Poor and Why’, The Journal of Economic Perspectives, 5/4 (1991), 34.

[7] Bergson, ‘The USSR Before the Fall: How Poor and Why’, 32.

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