The Rise and Fall of the Great Powers (86 page)

Almost exactly the opposite could be said about the USSR, as it evolved from the 1950s to the 1980s. As has been described above (pp. 385–91), these were decades when the Soviet Union not only maintained a strong army, but also achieved nuclear-strategic parity with the United States, developed an oceangoing navy, and extended its influence in various parts of the world. Yet this persistent drive to achieve equality with the Americans on the global scene was not matched by parallel achievements at the economic level. Ironically (given Marx’s stress upon the importance of the productive substructure in determining events), the country which claimed to be the world’s original Communist state appeared to be suffering from increasing economic difficulties as time went on.

This is not to gainsay the quite impressive economic progress which was made in the USSR—and throughout the Soviet-dominated bloc—since Stalin’s final years. In many respects, the region was even more transformed than western Europe during those few decades, although that may have been chiefly due to the fact that it was so much poorer and “underdeveloped” to begin with. At any event, measured in crude statistical terms, the gains were imposing. Russia’s steel output, a mere 12.3 million tons in 1945, soared to 65.3 million tons in 1960, and to 148 million tons in 1980 (making the USSR the world’s largest producer); electricity output rose from 43.2 million kilowatt-hours, to 292 million, to 1.294 billion, during the same periods; automobile production jumped from 74,000 units, to 524,000, to 2.2 million units; and this list of increases in products could be added to almost indefinitely.
²³⁹
Overall industrial output, averaging over 10 percent growth a year during the 1950s, increased from a notional 100 in 1953 to 421 in 1964,
²⁴⁰
which was a remarkable achievement—as were such obvious manifestations of Russian prowess as the Sputnik, space exploration,
and military hardware. By the time of Khrushchev’s political demise, the country had a far more prosperous, broader-based economy than under Stalin, and that absolute gain has steadily increased.

There were, however, two serious defects which began to overshadow these achievements. The first was the steady, long-term
decline
in the rate of growth, with industrial output each year since 1959 dropping from double-digit increases to a lower and lower figure, so that by the late 1970s it was down to 3–4 percent a year and still falling. In retrospect, this was a fairly natural development, since it has now become clear that the early, impressive annual increases were chiefly due to vast infusions of labor and capital. As the existing labor supply began to be fully utilized (and to compete with the requirements of the armed forces, and agriculture), the pace of growth could not help but fall back. As for capital investment, it was heavily directed into large-scale industry and defense-related production, which again emphasized quantitative rather than qualitative growth, and left many other sectors of the economy undercapitalized. Although the standard of living of the average Russian was improved by Khrushchev and his successors, nonetheless consumer demand could not (as in the West) stimulate growth in an economy in which personal consumption was being deliberately kept low in order to preserve national resources for heavy industry and the military. Above all, perhaps, there remained the chronic structural and climatic weaknesses affecting Soviet agriculture, the net output of which grew 4.8 percent a year in the 1950s but only 3 percent in the 1960s and 1.8 percent in the 1970s—despite all the attention and capital lavished upon it by anguished Soviet planners and their ministers.
²⁴¹
Bearing in mind the size of the agricultural sector in the USSR, and the fact that its population rose by 84 million in the three decades after 1950, the overall increases in national product per capita were significantly less than the rates of
industrial
output, which were in themselves a somewhat “forced” achievement.

The second serious defect was, predictably enough, in terms of the Soviet Union’s
relative
economic standing. During the 1950s and early 1960s, with its share both of world manufacturing output and of world trade increasing, Khrushchev’s claim that the Marxist mode of production was superior and would one day “bury capitalism” seemed to have some plausibility to it. Since that time, however, the trend has become more worrying to the Kremlin. The European Community, led by its industrial half-giant West Germany, has become much wealthier and more productive than the USSR. The small island state of Japan grew so fast that its overtaking of Russia’s total GNP became merely a matter of time. The United States, despite its own relative industrial decline, kept ahead in total output and wealth. The standard of living of the average Russian, and of his eastern-European confreres, did not close the gap with that in western Europe, toward which the peoples of the
Marxist economies looked with some envy. The newer technology, of computers, robotics, telecommunications, revealed the USSR and its satellites as poorly positioned to compete. And agriculture remained as weak as ever, in productive terms: in 1980, the American farm worker was producing enough food to supply sixty-five people, whereas his Russian equivalent turned out enough to feed only eight.
²⁴²
This, in turn, led to the embarrassing Soviet need to import increasing amounts of foodstuffs.

Many of Russia’s own economic difficulties have been mirrored by those of its satellites, which also achieved high growth rates in the 1950s and early 1960s—though again from levels which were low compared with those of the West, and by following priorities which similarly emphasized centralized planning, heavy industry, and collectivization of agriculture.
²⁴³
While significant differences in prosperity and growth occurred among the eastern European states (and still do occur), the overall tendency was one of early expansion and then slowdown—leaving Marxist planners with a choice of difficult options. In Russia’s case, additional farmland could be brought under cultivation, though the limits imposed by the winter ecology in the north and the deserts in the south restricted possibilities in that direction (and easily reminded many of how Khrushchev’s confident exploitation of the “virgin lands” soon turned them into dustbowls);
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similarly, more intensive exploitation of raw materials ran the danger of increasing inefficiencies in dealing with, say, oil stocks,
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while extractive costs rose swiftly as soon as mining was extended into the permafrost region. More capital might be poured into industry and technology, but only at the cost of diverting resources either from defense—which has remained the number-one priority of the USSR, despite all the changes of leadership—or from consumer goods—slighting of which was seen to be highly unpopular (especially in eastern Europe) at a time when improved communications were making the West’s relative prosperity even more obvious. Finally, Russia and its fellow Communist regimes could contemplate a series of reforms, not merely of the regular rooting-out-corruption and shaking-up-the-bureaucracy sort, but of the
system
itself, providing personal incentives, introducing a more realistic price mechanism, allowing increases in private farming, encouraging open discussion and entrepreneurship in dealing with the newer technologies, etc.; in other words, going for “creeping capitalism,” such as the Hungarians were adroitly practicing in the 1970s. The difficulty of that strategy, as the Czech experiences of 1968 showed, was that “liberalization” measures threw into question the
dirigiste
Communist regime itself—and were therefore frowned upon by party ideologues and the military throughout the cautious Brezhnev era.
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Reversing relative economic decline
therefore had to be done carefully, which in turn made a striking success unlikely.

Perhaps the only consolation to decision-makers in the Kremlin was that their archrival, the United States, also appeared to be encountering economic difficulties from the 1960s onward and that it was swiftly losing the
relative
share of the world’s wealth, production, and trade which it had possessed in 1945. Yet mention of that year is, of course, the most important fact in understanding the American relative decline. As argued above, the United States’ favorable economic position at that point in history was both unprecedented and artificial. It was on top of the world partly because of its own productive spurt, but also because of the temporary weakness of other nations. That situation would alter, against the United States, with Europe’s and Japan’s recovery of prewar level of output; and it would alter still further with the general expansion of world manufacturing production (which rose more than threefold between 1953 and 1973), since it was inconceivable that the United States could maintain its one-half share of 1945 when new factories and industrial plant were being created all over the globe. By 1953, Bairoch calculates, the American percentage had fallen to 44.7 percent; by 1980 to 31.5 percent; and it was still falling.
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For much the same reason, the CIA’s economic indicators showed the United States’ share of world GNP dropping from 25.9 percent in 1960 to 21.5 percent in 1980 (although the dollar’s short-lived rise in the currency markets would see that share increase over the next few years).
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The point was not that Americans were producing significantly less (except in industries generally declining in the western world), but that others were producing much more. Automobile production is perhaps the easiest way of illustrating the two trends which make up this story: in 1960, the United States manufactured 6.65 million automobiles, which was a massive 52 percent of the world output of 12.8 million such vehicles; by 1980, it was producing a mere 23 percent of the world output, but since the latter totaled 30 million units, the absolute American production had increased to 6.9 million units.

Yet despite that half-consoling thought—similar to the argument which the British used to half-console themselves seventy years earlier when their shares of world output began to be eroded—there was a worrying aspect to this development. The real question was not “Did the United States have to decline relatively?” but “Did it have to decline
so fast?”
For the fact was that even in the heyday of the Pax Americana, its competitive position was already being eroded by a disturbingly low average annual rate of growth of output per capita, especially as compared with previous decades (see
Table 42
).

Once again, it may be possible to argue that this was a historically “natural” development. As Michael Balfour remarks, for decades before
1950 the United States had increased its output faster than anyone else because it had been a major innovator in methods of standardization and mass production. As a result, it had “gone further than any other country to satisfy human needs and [was] already operating at a high level of efficiency (measured in terms of output per man per hour) so that the known possibilities for increasing output by better methods or better machinery were, in comparison with the rest of the world, smaller.”
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Yet while that was surely true, the United States was not helped by certain other secular trends which were occurring in its economy: fiscal and taxation policies encouraged high consumption, but a low personal savings rate; investment in R&D, except for military purposes, was slowly sinking compared with other countries; and defense expenditures themselves, as a proportion of national product, were larger than anywhere else in the western bloc of nations. In addition, an increasing proportion of the American population was moving from industry to services, that is, into low-productivity fields.
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Table 42. Average Annual Rate of Growth of Output per Capita, 1948-1962
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Much of this was hidden during the 1950s and 1960s by the glamour developments of American high technology (especially in the air), by the high prosperity which triggered off consumer demand for flashy cars and color televisions, and by the evident flow of dollars from the United States to poorer parts of the world, as foreign aid, or as military spending, or as investment by banks and companies. It is instructive in this regard to recall the widespread alarm in the mid-1960s at what Servan-Schreiber called
le défi Américain
—the vast outward surge of U.S. investments into Europe (and, by extension, elsewhere), allegedly turning those countries into economic satellites; the awe, or hatred, with which giant multinationals like Exxon and General Motors were regarded; and, associated with these trends, the respect accorded to the sophisticated management techniques imbued by American business schools.
²⁵²
From a certain economic perspective, indeed, this transfer of U.S. investment and production was an indicator of economic strength and modernity; it took advantage of lower labor costs and ensured greater access in overseas markets. Over time, however, these capital flows eventually became so strong that they began to outweigh
the surpluses which Americans earned on exports of manufactures, foodstuffs, and “invisible” services. Although this increasing payments deficit did see some gold draining out of the United States by the late 1950s, most foreign governments were content to hold more dollars (that being the leading reserve currency) rather than demand payment in gold.