Deindustrialization - By Country - Soviet Union

Soviet Union

Prior to its dissolution in 1991, the USSR had the second largest economy in the world after the United States. The economy of the Soviet Union was the modern world's first centrally planned economy. It was based on a system of state ownership and managed through Gosplan (the State Planning Commission), Gosbank (the State Bank) and the Gossnab (State Commission for Materials and Equipment Supply). Economic planning was through a series of Five-Year Plans. The emphasis was put on a very fast development of heavy industry and the nation became one of the world's top manufacturers of a large number of basic and heavy industrial products, but it lagged behind in the output of light industrial production and consumer durables.

As the Soviet economy grew more complex, it required more and more complex disaggregation of control figures (plan targets) and factory inputs. As it required more communication between the enterprises and the planning ministries, and as the number of enterprises, trusts, and ministries multiplied, the Soviet economy started stagnating. The Soviet economy was increasingly sluggish when it came to responding to change, adapting cost−saving technologies, and providing incentives at all levels to improve growth, productivity and efficiency.

Most information in the Soviet economy flowed from the top down and economic planning was often done based on faulty or outdated information, particularly in sectors with large numbers of consumers. As a result, some goods tended to be underproduced, leading to shortages, while other goods were overproduced and accumulated in storage. Some factories developed a system of barter and either exchanged or shared raw materials and parts, while consumers developed a black market for goods that were particularly sought after but constantly underproduced.

Conceding the weaknesses of their past approaches in solving new problems, the leaders of the late 1980s, headed by Mikhail Gorbachev, were seeking to mold a program of economic reform to galvanize the economy. However, by 1990 the Soviet government had lost control over economic conditions. Government spending increased sharply as an increasing number of unprofitable enterprises required state support and consumer price subsidies to continue.

The industrial production system in the Soviet Union suffered a political and economic collapse in 1991, after which a transition from centrally planned to market-driven economies occurred. With the collapse of the Soviet Union, the economic integration of the Soviet republics was dissolved, and overall industrial activity declined substantially. A lasting legacy remains in the physical infrastructure created during decades of combined industrial production practices.