You can use arrow keys to navigate in the map.
The example of the Soviet Union provides a vivid illustration of how the authority and incentives provided by the state can spearhead rapid economic growth under extractive institutions and how this type of growth ultimately comes to an end and collapses.
The newly created industry and collectivized farms were economically stagnant and inefficient, in the sense that they didn't make the best use of the resources the Soviet Union possessed.
Its industry grew rapidly.
Stalin energized the Gosplan, which wrote the first Five Year Plan (1928-1933). The plan was simple: develop industry by government command and obtain the necessary resources for this by taxing agriculture at very high rates.
The communist state did not have an effective tax system, so instead Stalin “collectivized” agriculture. This process entailed the abolition of private property rights to land and the herding of all people in the countryside into giant collective farms run by the Communist Party.
This made it much easier for Stalin to grab agricultural output and use it to feed all the people who were building and manning the new factories.
The collective farms completely lacked incentives for people to work hard, so production fell sharply.
So much of what was produced was extracted that there was not enough to eat. People began to starve to death.
In the end, probably six million people died of famine, while hundreds of thousands of others were murdered or banished to Siberia during the forcible collectivization.
The five-year plans were frequently revised and rewritten or simply ignored.
The soviet union grew rapidly.
Large gains could be reaped by reallocating resources to the industrial sector, even if all this was done inefficiently and by force.
Most Russian peasants lived in the countryside.
The last vestiges of Russian feudalism were eradicated only shortly before the First World War.
The technology used by peasants was primitive, and there were few incentives to be productive.
Its technology was so backward relative to what was available in Europe and the United States.
By the 1970s, economic growth had all but stopped.
Once all the very inefficiently used resources had been reallocated to industry, there were few economic gains to be had by fiat.
The Soviets did manage to sustain some innovation in military and aerospace technology.
They did so only through enormous efforts.
This quick economic growth was not created by technological change, but by reallocating labor and by capital accumulation through the creation of new tools and factories.
In some instances the productivity of labor and capital may be so much higher in one sector or activity, such as heavy industry in the Soviet Union, that even a top-down process under extractive institutions that allocates resources toward that sector can generate growth.
Allowing people to make their own decisions via markets is the best way for a society to efficiently use its resources.
When the state or a narrow elite controls all these resources instead, neither the right incentives will be created nor will there be an efficient allocation of the skills and talents of people.
Even if growth happens, it will not be growth based on technological change, but rather growth based on existing technology.