What Happened to the Soviet Industrial Infrastructure?

Many people have asked me "Why is Russia's industrial economy so poor?" Didn't the Soviet Union pride itself on its factories and industrial capability? In short, yes. But the events following the fall of the Soviet Union have been a major factor in why Russia's industrial capability is so pitiful right now. This is an initial brief historical outline of the current industrial situation in Russia. I plan to write more on the Russian economy as the events around the recession continue to unfold

Whenever one is asked to name a Russian product in America, immediately the first thoughts turn to vodka. And in many ways there is a good reason for that. Industry and the Russian economy has had a very interesting history. Prior to the 18th century much of Russia's industry consisted of small time operations focused around one family dwelling producing small agricultural products, the very definition of the phrase "cottage industry". In the 18th and 19th centuries, large-scale industrial production began to increase. Much of the new production was due to the desire of having the ability to manufacture arms domestically and not having to rely on foreign foundries for the firearms and artillery needs of the burgeoning Russian military. These factories were mainly located in the Ural mountain area (still the main region for military and industrial production) and the Ivanovo region (known for textile factories) 250 kilometers from Moscow. One reason why industry was able to flourish was due to the fact that landowners could earn money by sending their serfs to these newly built factories as laborers, giving Russia a built in indentured labor force. Although heavy industry saw their growth expand exponentially, especially in the 19th century, Russia still lagged far behind most of the developed Western European countries which by the turn of the century where feeling the full effects of the Industrial Revolution. In fact, due to the high ratio of agricultural labor to factory labor (agriculture work during the time of the 1917 Revolutions still employed about 80% of the population) and the quasi-feudal socio-economic system, Russia was probably the last place Karl Marx would have thought his proletariat revolution should or would occur. (For a much more concise history of the Russian economy I recommend Jerome Blum's "Lord and Peasant in Russia" which not only give an excellent historical overview of the rise of Russian serfdom but in addition gives an excellent overview of Russian political and social history while keeping a seemingly stale topic intriguing, not in the least by blatantly poking and prodding his Soviet contemporaries over their dubious Marxist narratives).

The early Soviet government under Vladimir Lenin took direct aim at changing the Russian economy from being agriculturally driven to industrially driven. Part of the reason for that was the notion that the Russian peasant was very conservative in both their fiscal and social views, most were very religious and wanted to be left alone to tend to their newly acquired land. Thus they were deemed untrustworthy and a potential rival to the Soviet state, in essence the proletariat was not the peasants, but the workers. Early Soviet propaganda posters depict this issue by juxtaposing an image of the "New Soviet Man" with clean clothes and new work boots with the traditional image of the disheveled and ignorant peasant, the implication being that the worker would be the future of the Soviet state, and the peasant must be cultivated to become a productive member of society.

Under Stalin, the modernization of the Soviet economy was put into MLXLS​​overdrive, his Five Year Plans the driving force which every Soviet Citizen had to meet pre-determined goals (often imaginative and physically unattainable). Of course this rapid agricultural "collectivization" and "industrialization" held tragic consequences for the populace, with many millions dying from one social malady or another. Nevertheless, the Soviet Union was able to build up its industry, in some areas (allegedly) surpassing western production within a decade of the start of the first Five Year Plan in 1938. Most villages and cities had a few factories in them to employ all the local residents, hoping to spur on the Soviet Union to the worker's paradise it was intended to be.

This very brief history brings us to the collapse of the Soviet Union, the "Wild West" 1990's and the present situation.

The rapid transition from a state-owned economy to a privately-owned economy was in many ways unsuccessful. In the former state-owned factories, each former state-employee received stock for a percentage of the factories worth, essentially making each factory employe-owned. While theoretically this makes some sense, in practice the collapse of the Soviet economy had devastating effects on the populace, overnight life savings were worthless. Many people unaccustomed to the notion of a stock market saw little value in a piece of paper worth a theoretical amount of money, and were happy to sell them for pennies on the dollar to have some real cash. The people buying these factories, in turn, were in many cases former Communist Party members or employees of some state apparatus (like the KGB) who had retained their power. Often these takeovers were not by choice, threats and actual violence led to the former owners relinquishing their shares to what would be considered organized crime. (The late Anna Politkovskaya's book "Putin's Russia" addresses many of these issues, providing several in-depth accounts of factories being forcefully taken over. I highly recommend one reads it if they want to further understand how Russia got into this current industrial-deficient situation. This was also the last book she wrote before being suspiciously murdered.)

The final straw that led to the devastation of the Soviet industrial complex was what the new "owners" chose to do with their factories. Most had little interest in running a small bread factory in provincial Russia or investing in the Russian economy, so many ran these operations into the ground in one of two ways: either producing what the factories were designed for without paying any attention to quality, safety or maintained wanting simply to extract as much money from it as possible before selling the last broken remnants for scrap or parting the machines out and leaving the labor force unemployed; or turning their factories into production plants to produce a product that is always needed, especially in trying economic times: vodka. These new vodka plants themselves were also ran into the ground in the same fashion. The end result for the owners (or oligarchs as many of the wealthier have become known as), to make enough money to get out of Russia and live a life of luxury, or as some Russians say, "to buy an island somewhere warm."

It must be said that some stayed, and parlayed their new business ventures into successful titans of industry, though these were mostly natural resources which are sold abroad like lumber and oil. (The military-industrial complex, unlike most of Russia's industries, remains state controlled, more on that later.)

So the current plight of Russia, whose president Vladimir Putin is seemingly attempting to revert to a neo-Soviet state of self-reliance and domestic production, is most unfortunate. With the trade embargo by the EU, the US and Canada and the counter-embargo by Russia on foreign products, the need for production is real. However, the current capability does not exist, nor is their capital left for reinvigorating the non-existent industrial sector (the Telegraph has an excellent article discussing this situation:http://www.telegraph.co.uk/finance/economics/11937348/Russia-retreats-to-autarky-as-poverty-looms.html). The current economic recession has no clear end in sight, the oil reserves which Russia built up for situations like this are running out and self-reliance and domestic industrial production does not seem to be an option. With the conflicts in Ukraine and Syria increasingly demanding more and more of the Russian treasury’s resources, poverty looms, or as former Deputy Economic Minister Ivan Starikov recently stated, "We are once again a country of poor people"

#SovietUnion