Why did the Soviet Union Collapse?

by Russell Nelson

Dear Friends,

Any mathematician could have told us why — or should have been able to predict the collapse as far back as the 1930s.

The government of the Soviet Union monopolized the decision on what goods and services would be produced, how many of each, how much would be devoted to the military and how much to civilian uses, and who should get how many of each. The last decision was made by forcing citizens to work in factories or on collective farms selected by the government and by setting the wages of each person and the prices of every commodity.

While most did not monopolize the economy so completely, many third-world governments adopted so many of the features of the Soviet economy that they too failed. This is explained in TQE #43, on the commanding heights.

The mathematical reason for failure: it's no simple task to allocate resources. You can look at it as a problem akin to packing an automobile trunk (or boot, to readers who speak British). You have a negative space (the trunk) and a positive space (the suitcases) to combine. You wish to pack as many suitcases into the trunk as possible. For extremely small problems (e.g. N suitcases and 1 trunk) you might actually be able to find the best solution.

If you add in more suitcases and trunks, you have the bin-packing problem. Many items to put in many bins. Add one more item, and the possible combinations are doubled. Add another, and they are multiplied by four, still another and they are multiplied by eight, and so on in exponential growth. You have to examine every one of the almost infinite solutions to see when the bins are full.

This branch of mathematics is called complexity theory. You don't actually have to solve any problems — you only have to figure out how hard they are to solve. If you have N bins and one object, there are only N possible solutions. (You can put the one item into any one of N bins). If you have two objects, you have N x N, because both objects could fit into N different bins. If you add another object, you multiply by N. This problem grows exponentially.

Suppose we wish to redistribute N items that now belong to six billion people. We will take them all away and give them back in such quantities that everyone will be as satisfied as possible. The poor, who get more than they gave, will of course be satisfied. The rich, who lose more than they get, will be dissatisfied. We wish to maximize the satisfaction of the erstwhile poor and minimize the dissatisfaction of the erstwhile rich. Such a problem is difficult beyond imagining. Add another person, and six billion new arrangements must be considered. So we look for a shortcut, called a heuristic.

A Heuristic Solution?

Perhaps we can cut down the allocation problem? Perhaps we only allocate resources locally? Still, there are so many resources intrinsically in motion (people, air, water, animals) that this does not simplify enough.

Perhaps we can settle for a solution which isn't as good as others? We could expend fewer resources if we tried to allocate the resources and counsel people to be content with their lot in life. That seems unfair. But if the costs of trading are high enough, perhaps it really is the best we can do.

With all its difficulty, abstract bin-packing is easier than real-world problems. You need only look at the bin to see whether it is full or not. It's much more difficult to look at a person to see if he or she is "full" or not. How to tell if a person is satisfied with what they have, or if another resource would make them happier?

Central planners treat each person as an inanimate bin, and somehow measure their satisfaction as a "fullness." We have seen that hard though they try, they cannot come up with fair solutions, for two reasons: (1) the inordinate difficulty of the bin-packing problem, and (2) the inability to measure a person's fullness, multiplied by all the persons in the country.

So, let us reformulate the problem. Start with an initial assignment of each resource to a bin, whether "full" or not. This signifies whatever distribution of wealth we now have. Than let each bin (person) trade with the bins nearby. This is how people in a free market behave.

Bins fill themselves through production, and one of the rules of free markets is that each person owns the property that he or she produces. In large corporations, wages are paid according to production, while managers earn what they have produced in keeping the corporation alive and profitable. In recent years, this principle has been vastly violated by some of the largest corporations and by greedy CEOs. The violation was possible because other agencies (bankers, stockholders, and workers) were not demanding adequate accounting for their use of resources. (See TQE #48).

Letting bins fill themselves (by their production) is likely to produce pockets of local despair, such as ghettoes in large cities. The solution here is to make bins (people) and resources as mobile as possible. This models the litany of solutions advocated by economists: unrestricted immigration, free trade, convertible currencies, low taxes and duties. In such a society, persons (bins) and products may move wherever they see the greatest advantage to themselves.

Societies that have allocated resources (suitcases) to the people (bins) by central authority have all failed miserably. The Soviet Union gave up wholesale. China has kept communism in name but has changed to a market economy. North Koreans are starving. Cubans have allocated medical care well and fairly, but nothing else. India, plus most of Africa and Latin America, are all dropping regulations, selling off state enterprises, and turning to the free market as much as possible (see TQE #43). It took them about eighty years to discover that the authorities could not pack the bins for greatest satisfaction.

A free market society attempts to solve the problem by freedom. Let the people choose their own definition of fullness, let them choose what they wish to fill their needs, let people work where they will as they will, and interfere not at all or very little in the marketplace. Allow competition to reduce prices to the minimum. Protect private property so that people can conserve for the future. In this manner, many goods are available at many different prices, quantities, and areas. Nearly everybody will be able to find goods to meet their needs.

The free market solves the bin-packing problem in the most efficient manner (that is, with the least waste of resources) and ultimately in the fairest manner because decisions are made at the margin. With all bins containing a certain number of items, the people concerned move first one, then another into the available spaces. Wasted space is minimized. Billions of such moves are made simultaneously. Despite widespread belief to the contrary, countries that mostly employed the free market have been the most innovative, the most productive, and the most fair in all the world. By fairness, I mean that income distributions in free market societies have become successively more egalitarian, compared to authoritarian societies.

The examples we have seen are only on the consumer side — things you'd buy for yourself. The problem gets much, much more difficult when you consider the business side — the things that businesses buy to make things the consumers buy. In reality, the items you are putting in your bin to satisfy yourself were once bins themselves. But at this point the problem is already mind-boggling. Adding more details increases the impossibility of understanding, much less solving.

Even with a free market, rules are essential, to preserve private property (so it cannot be confiscated at the will of the authority), to penalize fraud, to require proper payment of debt or enter into bankruptcy when payment is impossible, to enforce contracts, and so on. Rules must also require that persons pay the full cost of use of environmental resources (see TQE #48), The problems with Enron, WorldCom, and others did not arise because of the free market. They arose because, with the greed stemming from wild prosperity (again, see TQE #48), enforcement of the rules became lax.

So, which path would you choose?

Sincerely your friend,

Russ Nelson

Readers' Comments:

Please send comments on this or any TQE, at any time. Selected comments will be appended to the appropriate letter as they are received. Please indicate in the subject line the number of the Letter to which you refer! The email address is tqe-comment followed by @quaker.org. All published letters will be edited for spelling, grammar, clarity, and brevity. Please mention your home meeting, church, synagogue (or ...), and where you live.

Your metaphor of the bins is very explanatory, for a difficult subject! The problem got worse in the Soviet Unoin as people lost faith in getting anything through normal channels. Goods were siphoned off from factories for the black market, making it hard to even know where the bins were!

— Trudy Reagan, Palo Alto (CA) Meeting.

Your analogy is faulty. If all bins need a few basic items that are identical then the solution is trivial: lets say food, clothing shelter, some health care, sewerage, streets etc. Once those needs are taken care of then you can play complexity games (since you like economics we will say the item is actually 'money' to buy those items and hence it is totally identical).

— Charlie Thomas, Cascabel Worship Group, Tucson AZ.

Those who might be concerned that the free market is unduly harsh on those of lesser abilities, should look to a transparent and healthy charitable sector to redress the balance.

— Andrew Gambier, London, United Kingdom.

I enjoyed your math description as to why the USSR collapsed in 1989, although it got a bit difficult to follow for a math phobic like me. But one flaw in the Soviet system you failed to mention (and maybe it wasn't on your agenda or was being saved for another tqe) was that the system could only be maintained through violence against its own people. After slaughtering 60 to 80 million of its own citizens (all for the good of the state, of course) over the seventy years of its existence, the Soviet bureaucracy finally lost the ability to get its citizens to be productive. The glib saying during its last years was "We pretend to work and they pretend to pay us." This long term violence, which surpassed even Hitler's capacity to kill (throughout the 1930's, before Hitler started killing the 6 million usually associated with the Holocaust, Satlin had already surpassed that number) is something the political left throughout the world has either downplayed or ignored completely. Is it any wonder that when the state is killing off one of every four of its citizens and making sure that the ones killed are some of the most productive members of the community that that same state will lose its capacity to provide for its members. Where will the productivity come from when the main question is "who's next in line for the gulag?".

— Chuck Rostkowski, Salt Lake (UT) Friends Meeting.

At least you acknowledged that there can be a reason for government in the closing words of your essay. Your former comments (in other conversations) seem to see little reason for a broad societal and market control function provided through a democratically elected and popular responsive government. Yes, controls on trade and corporate practices are needed since there are other aspects of society that are even more important than maximizing dollars in corporations and their CEOs. Free markets are not the sole solution to a fair and free society. Checks and balances by a responsive government are also essential. For honest checks and balances on abuses from a totally free market, the real issue is how to restore our government so that it becomes responsive to the people and not just the businesses that have purchased it.

— Richard Andrews, Boulder (CO) Meeting of Friends.

Thanks for the fascinating mathematical analysis. As one who has been there several times, the collapse of communist economies also seemed predictable from the human side. Examples of a "classless" society: 1) the Soviet son of the USSR Ambassador to France who argued that while he was unwilling to give up his American car (equivalent to a private jet in that economy) to those in need, he might do so "in the future when we change human nature;" 2) the members of the Central Committee of the Communist Party who kept for themselves the Czar's box at the Bolshoi; 3) the "worker-owned" plots on collective farms which were far more productive than the farms themselves; 4) the summer cottages or "dachas of the communist elite were envied by all;" 5) only well-connected students got clearance for study abroad or contact with foreigners. From a business point of view, once economic incentives were introduced in our venture in communist Poland, productivity increased dramatically. "Unemployment" may have not existed in communist economies, but "padding the workrolls" was rampant. In Yugoslavia, a television station had 2,300 employees (1,200 journalists) compared to 250-300 in the US.

— Norval Reece, Newtown (PA) Friends Meeting.

I believe you go too far in your claims for the free market when you say it leads countries to be the "...most productive, most fair in all the world." First, I think you should have said " most productive and fair", because if you look at income distribution today in Cuba, or 15 years ago in the USSR, by almost all measures of income distribution egalitarianism I am sure they outdo the U.S. or western Europe and Japan today, but they fall short in production. More importantly, you imply that a free market leads not only to efficiency, innovation and productivity, but also necessarily leads to "fairness ". You can prove efficiency from a static free market model, and with reasonable additions about incentives to get a dynamic model, you can show innovation and productivity, but no free market model, however dynamic, can show "fairness" or an egalitarian income distribution. To do that you must add a political element to your model to argue that a free market leads to a democratic society that will elect governments that through taxation and provision of public goods lead to a just society with a defensible distribution of income. In short, free markets are necessary but not sufficient, and we Quakers still face monumental tasks to obtain a "fair" society.

— Bill Rhoads, Germantown (PA) Meeting.

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PUBLISHER AND EDITORIAL BOARD

Publisher: Russ Nelson, St. Lawrence Valley (NY) Friends Meeting

Editorial Board

Roger Conant, Mount Toby Meeting, Northampton, MA.
Caroline Conzelman, Boulder (CO).
Ann Dixon, Boulder (CO) Meeting of Friends.
Virginia Flagg, San Diego (CA) Friends Meeting.
Merlyn Holmes, Boulder, Colorado.
Janet Minshall, Anneewakee Creek Friends Worship Group, Douglasvillle (GA).
Jack Powelson, Boulder (CO) Meeting of Friends, Principal Editor.
J.D. von Pischke, a Friend from Reston, VA.
Geoffrey Williams, Attender at New York Fifteenth Street Meeting.

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This newsletter was formerly known as The Classic Liberal Quaker.